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Cheese, butter prices expected to hold

Published on July 1, 2011 3:01AM

Last changed on July 29, 2011 9:38AM

Tight supplies, foreign markets propping up futures


Capital Press

Cheese and butter prices, both over $2 a pound, are forecasted to hold those highs through the rest of the year.

The CME monthly average price of cheese will be above $2 in June, the first time this year, said Jerry Dryer, publisher of Dairy & Food Market Analyst.

"I'm forecasting it'll be above $2 through the end of the year, with a peak of $2.30 in October," he said.

That translates to $20 per hundredweight of milk, depending on the whey price, for Class III producers, he said.

A number of factors will keep the cheese price high, he said.

American cheese inventories were virtually unchanged in May, and production was likely down. USDA's June 22 cold storage report shows inventories essentially unchanged since the end of February.

In addition, hot temperatures will take a bite out of the milk supply, and feed prices and feed quality are resulting in lower ration quality, which will lessen per-cow output, he said.

Due to the 40-cent difference between May and June prices, customers who buy on the previous month average price have a lot of motivation to place orders, he said.

While international buyers have slowed their pace, many of them front loaded purchases in anticipation of higher prices, but product will keep shipping. Other overseas buyers hedged their purchases, and those orders will keep shipping as well, he said.

At 1.05 billion pounds of total cheese in storage, inventories continue to be very large, and U.S. prices are above world prices, Bill Van Dam, CEO of Alliance of Western Milk Producers, said in his June 24 weekly update.

"But the market is showing no signs of being nervous or jittery," remaining above $2 a pound for four consecutive weeks, he said.

But Oceana prices for cheddar are 11 cents a pound below the CME price.

"Pressure to normalize the difference has got to be growing," he said.

On the butter front, long-running high prices are breaking records. Prices have been above $1.80 a pound for 14 months and above $2 a pound for 10 months, Dryer said.

"That is unprecedented, by a long shot," he said.

Both export and domestic demand are driving the lofty prices.

"There's just simply a tight supply of butter," he said.

Part of that is that New Zealand is putting most of its butterfat into whole milk powder, he said.

Butter prices were $2.22 a pound on June 28, and he's forecasting prices will stay above $2 per pound for the remainder of the year, peaking at $2.30 per pound in October.

"The fundamentals for butter continue to be sound, but that doesn't mean that some further downward adjustment will not occur," Van Dam said.

Nonetheless, butter futures suggest that prices will hold until December, he added.

For producers of milk for cheese and butter, revue is looking pretty good, Dryer said.

"We just have to get these corn prices under control," he added


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