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Dairy product prices peaked for the year last month, but supply is higher than demand for now

The Blair Press-Taylor of Blair, Wisconsin

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MADISON — A bump in total cheese stocks throughout the Northeast and Midwest is beginning to soften demand and that's leading to downward pressure on dairy prices. University of Wisconsin-Extension expert Bob Cropp noted in his latest Dairy Situation and Outlook report that the average cheese price on the Chicago Mercantile Exchange last month peaked for the year at $1.71 per pound for 40-pound cheddar blocks and $1.67 for cheddar barrels. But prices have since declined, settling as low as $1.67 and $1.63, respectively.

"Butter prices have also declined," Cropp said in his monthly report. "Butter was $1.93 per pound the start of the month and now is $1.83. But, the biggest decline in prices has been nonfat dry milk, [which] was above $1.00 per pound through April [and has declined] to $0.74 per pound, the lowest price in 12 years."

Meanwhile, the USDA's estimate of June milk production showed the growth in production slowing. Compared to June a year ago, milk production was down in California, New Mexico and Texas--which are all big producing states. But since overall output is as strong as ever, the market is having a difficult time using up all the supply.

"If dairy exports were at the levels a year ago, along with the existing good domestic sales, increases in milk production of 1.4 percent would easily be handled without lower milk prices," he noted. "But, exports are well below year ago levels. And it is not overly optimistic that exports will improve any time before well into next year,"

In fact, trades on the Global Dairy Trade prices have fallen for nine consecutive month, Cropp says. GDT prices are currently $ 1.12 per pound for butter, $1.19 per pound for cheddar cheese and 77-cents per pound for skim milk powder, all well below existing U.S. prices except for skim milk powder in comparison to nonfat dry milk.

"There currently exists a world buildup of surplus dairy products and the supply and demand will likely not come more in balance until the second half of next year. Also, not only are U.S. exports lower, with U.S. prices of cheese and butter still well above world prices imports are much higher than a year ago."

Looking ahead, the professor emeritus says the July Class III price will be around $16.25 compared to $16.72 for June, and the Class IV price near $13.45 compared to $13.90 for June. But, with the declining dairy product prices the Class III price will be hi the low to mid-$15's for the remainder of the year. Cropp foresees feed prices averaging a little higher this fall and winter margins to dairy producers falling lower which could lower increases in milk production for next year.

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Original Publication Date: July 30, 2015

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