More milk, larger stocks keep lid on most dairy product prices in 2008

by Ron Sterk
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With milk production and most dairy product stocks above year-ago levels, milk and dairy product prices are expected to average below 2007 prices in 2008, although good export demand and slower milk production growth could pull prices higher in the second half of the year and into 2009.

In its July 11 World Agricultural Supply and Demand Estimates, the U.S. Department of Agriculture forecast U.S. 2008 milk production at 189.5 billion lbs, up 3.9 billion lbs, or 2%, from 2007, which was up 3.8 billion lbs, also 2%, from 2006.

Milk production in the 23 major states was 74 billion lbs in the first five months of 2008, up 3.5% from the same period last year, the U.S.D.A. said in its latest Milk Production report.

"Milk production forecasts for 2008 are increased due to slightly higher forecast cow numbers and slightly stronger growth in milk per cow," the U.S.D.A. said.

Stocks of most dairy items, including dried products, butter and cheese, remain well above year-ago levels.

In its latest Dairy Products report, the U.S.D.A. said manufacturers’ stocks of edible nonfat dry milk were 125,384,000 lbs on May 31, up 36% from a year earlier; edible dry whey was 63,120,000 lbs, up 52%; whey protein concentrate was 41,744,000 lbs, up 77%; and dry buttermilk was 9,695,000 lbs, up 45%. Supplies of lactose for human and animal consumption were 78,817,000 lbs, up 84% from a year ago.

Although stocks were up from a year ago, production of milk products during the January-May period has been mixed. Cumulative nonfat dry milk outturn was up 14% and total whey protein concentrate was up 5% from a year ago, but total dry whey and lactose production both were down 2% from last year, the U.S.D.A. said.

Total cheese production has been relatively constant at 4.1 billion lbs in the period, up less than 1% from January-May 2007. Cheese stocks on May 31 were 887,469,000 lbs, down 1% from last year. But prices for cheddar blocks and barrels traded at the Chicago Mercantile Exchange have declined sharply since late May and were below year-ago values.

Butter production at 761,191,000 lbs was up 12% from a year ago for the January-May period. Stocks of butter in cold storage were 263,041,000 lbs at the end of May, down 3% from a year ago. Butter prices at the C.M.E. moved above year-ago levels and were record high in early July.

"Despite relatively slow growth in cheese production, recent prices have been lower than expected and the price forecast for 2008 is reduced from last month," the U.S.D.A. said in its July WASDE report. "However, strong demand is boosting butter and nonfat dry milk prices."

The U.S.D.A. forecast 2008 average prices for nonfat dry milk at $1.38½ a lb, down about 32c from 2007 but about 50c above the 2006 average. Dry whey prices were forecast to average about 29c a lb in 2008, about half of the 2007 average of 60c and about 3c below the 2006 average. Cheese prices were forecast to average $1.95 a lb, up 20c from 2007 and 70c above 2006. Butter prices were forecast at $1.39 a lb, up a nickel from last year and up 17c from 2006.

The average price paid to farmers for all milk in May was $18.40 a cwt, 40c above the May 2007 price. Milk prices averaged $19.40 on a preliminary basis in June, up $1 from May but 80c below the June 2007 average, the U.S.D.A. said in its June Agricultural Prices report. For the year, the U.S.D.A. expects the average all milk price to be $19.10 a cwt, down 3c from a year earlier but more than $6 above the 2006 average.

But a slower rate of growth in milk production, declining stocks and continued good export demand are expected to reverse the downtrend in milk and most dairy product prices in the latter half of 2008 and into 2009, the U.S.D.A. said.

Milk production in 2009 was projected at 190.3 billion lbs, up 300 million lbs, or less than half a per cent, from 2008, and small compared with year-on-year increases of 2% in both 2008 and 2007.

"Higher feed prices are expected to largely offset higher milk prices and the production forecast for 2009 is unchanged (from June)," the U.S.D.A. said.

Nonfat dry milk prices in 2009 were projected to average around $1.50 a lb, up 22c from 2008, and dry whey near 33c a lb, up about 4c. Cheese prices were projected to average near $1.90 a lb next year, down 5c from 2008, with butter prices near $1.40 a lb, down only slightly, the U.S.D.A. said.

The U.S.D.A. projected the average price for all milk at $19.10 a cwt in 2009, unchanged from the current year.

This article can also be found in the digital edition of Dairy Business News, July 22, 2008, starting on Page 14. Click here to search that archive.

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