Most spot prices for dairy products on the Chicago Mercantile Exchange continue to move lower this week after prices for all products declined last week for the first time since early February.
Block cheese was down a nickel a pound on Monday, down another 3.5 cents on Tuesday and down another 7.77 cents on Wednesday to $2.19 a pound after ending last week at $2.35, 3.5 cents lower than the previous week.
Nonfat dry milk fell 3.25 cents on Monday and another 11 cents on Wednesday to not quite $1.89 after having ended last week less than a penny shy of $2 a pound, 3 cents lower than the previous week.
Butter is holding at $1.97 per pound this week after having ended last week 3 cents lower than the previous week.
A number of factors are behind the price declines, said Jerry Dryer, chief market analyst for Rice Dairy, a Chicago-based brokerage firm.
Wholesale cheese prices are high enough that they are finally working their way through the system. Increases are showing up on retail shelves, resulting in a pushback from consumers. Retail prices for butter and milk also likely increased in March, he said.
In addition, markets are expecting an increase in milk production with weather straightening out in the Midwest and the spring flush beginning, he said.
Slowing of strong exports due to high prices is another factor putting pressure on markets. Much of the cheese exported in the first quarter was hedged and protected from prices over $2 a pound on the CME. But less was hedged for the second quarter, and some orders are being canceled, he said.
“They’re going to slow a little near term, but they’ll return when prices get more in line with reality,” he said.
Some customers, such as those in Southeast Asia and the Middle East, were priced out of the market when prices got too rich for their blood. But their inventories are really low, and they’ll come back into the market before too long, he said.
China has also slowed its imports of dairy products a little after through-the-ceiling importing in January, but it too will be back in the market, he said.
Prices in the last Global Dairy Trade auction were sharply lower, and with milk production growing overseas and the upcoming spring flush in the U.S., dairy product prices have likely peaked and are expected to decline with each passing month, said Sarina Sharp, analyst with the Daily Dairy Report.
Some people say dairy product prices will continue to drop like a rock for a while, Dryer said, but he isn’t so certain that will happen. He thinks cheese prices will halt in the $2 a pound range, maybe slightly higher, he said.
But “these things have a mind of their own. They move in one direction and don’t have the good sense to stop,” he said.
Prices went too high and they might go too low, he said.
But demand has been running ahead of supply and will remain robust. High prices will persist into the second quarter and slowly trend lower, he said.
A summary of forecasts by eight economists including Dryer puts average per-pound prices for 2014 at $1.97 for CME block cheese, $1.78 for CME butter, $1.86 for nonfat dry milk, and $0.61 for dry whey.
It should be a good year for dairymen, Dryer said.
The economists are forecasting a 2014 annual average of $20.15 per hundredweight for Class III milk, and $21.35 for Class IV milk.