Is It Deja Vue In The Dairy Markets?

US - What is going on in our dairy markets? First it was butter; the CME spot price increased from $1.53 per pound the last day of November to $2.10 less than six weeks later (and has remained there since). Next was nonfat dry milk, increasing on the CME spot market from $1.2250 on December 8 to $1.72 per pound on February 3. Then came cheddar cheese, where the CME spot price for 40-pound blocks settled December 28 at $1.32 per pound and by February 3 closed at nearly $1.79, says Bob Yonkers, IDFA Chief Economist.
calendar icon 15 February 2011
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Believe it or not, many of the same factors that led to record-high farm milk and dairy product prices beginning in 2007 and lasting into 2008 are again at play this year. The global economy is recovering from the world economic crisis, especially in developing countries. World demand for food in general and dairy products specifically, like in 2007-2008, is again very robust and expected to continue strong.

As a result, international dairy product prices have been rising and continue to increase. The US Department of Agriculture reports that the price of butter in Europe has increased from US$4000 per metric ton in late March 2010 to US$5375 ($2.44 per pound) now, and prices for butter out of Oceania are reported to average US$4850. Skim milk powder (SMP) prices reported by USDA climbed in Europe from US$2800 in late November 2010 to US$3750 ($1.70 per pound) now; similar increases have been seen for SMP out of Oceania, with the most recent USDA-reported average at US$3800 per metric ton. Even cheddar cheese out of Oceania has seen prices increase from US$3900 per metric ton in mid-August 2010 to US$4400 ($2.00 per pound) now.

However, supply conditions for some of the leading exporters have not been very favourable. New Zealand has been threatened with drought this past year, and, in Australia, rains continue to devastate areas where grain is produced. In the European Union, despite the gradual increase in quota in recent years (which continues on course to elimination by 2015), milk production is behind quota levels in several countries.

In addition, energy markets are nervous, with world oil prices around US$90 per barrel. In the past year, oil prices have nearly doubled and followed a very similar path to that seen in 2007. In fact, the only other time we have seen higher oil prices was late 2007 through the first half of 2008, when they hit over US$140 per barrel.

Finally, wheat, grain and oilseeds prices have been marching higher for months now. Remember that feed costs are the single largest factor that determines the cost of producing milk in the United States. Many of the same factors discussed above are leading to higher food prices overall.

So, we're experiencing robust growth in world food demand, supply problems in some of the major dairy countries and increasing costs of inputs like dairy feed and energy. Doesn't that sound like déjà vu all over again?

TheCattleSite News Desk

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