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Dairy Product Prices Remain Strong, Despite More Output
Wisconsin Ag Connection - 08/26/2014

Butter and cheese prices will average higher during the month of August, even with milk production heading upward for most of the summer. That's according to Dr. Bob Cropp, professor emeritus with the University of Wisconsin Cooperative Extension. He said in his monthly Dairy Situation and Outlook report that the sustained value in dairy product prices are once again being attributed to strong dairy exports, as well as milk suppliers gearing up for school to open soon.

"With good domestic sales and strong exports the need for higher stock level exists," Cropp said in his August report. "Compared to the previous five year average June butter stocks were actually 32-percent higher and total cheese stocks three-percent higher."

On the Chicago Mercantile Exchange, butter averaged $2.46 per pound in July, but has been higher in August reaching a record high for the year at $2.66 on August 15. Cheddar barrels also increased--going from $1.997 per pound in July to $2.21 in mid-August.

"Higher cheese and butter prices along with dry whey holding at $0.67 per pound will result in a Class III price near $22.20 in August compared to $21.60 in July," he noted, adding that nonfat dry milk prices have weakened at the same time.

Meanwhile, farmers are also noticing that the world milk production has also improved significantly--particularly in New Zealand the EU countries. China has been very active in importing dairy products and has moved passed Canada as U.S. second largest customer. But China has accumulated stocks to the point where their imported activity has decreased, Cropp said. The result has been a significant fall in world prices putting prices below U.S. prices.

"While cheese exports were still higher than a year ago for June reports are that new orders by international buyers have softened."

Looking ahead, the American dairy sector can expect dairy product prices and milk prices to decline toward the last quarter of 2014. The level of milk prices and much lower feed costs has meant very favorable margins for dairy producers to increase milk production. But dairy futures still remain very optimistic with the Class III price staying above $21 through October and above $19 for December.


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