High prices remain after milk production hike

By Neil Merrett

- Last updated on GMT

Related tags Milk

An expected increase in global dairy production is unlikely to
alleviate current industry concerns over high milk prices,
according to findings by the US Department of Agriculture

In its latest livestock, dairy and poultry outlook, the USDA said that while the increased availability of milk during the rest of the year and into 2008 will help balance the market, it will still be insufficient to drive major price cuts. The findings signify yet further financial pressure for dairy processors, as a decreasing global milk supply leads to higher material costs. Total milk production for 2008 is projected to rise to 188.6bn pounds (LBS) from 184.3bn lbs expected this year, the findings suggest. Despite this expected growth, sustained high demand for dairy both on a domestic and international basis is expected to ensure milk prices remain high. The USDA attributed these price projections by a two per cent rise in sales of fluid milk from 2006, creating a turnaround from previous declines in dairy consumption. This was driven predominantly by rising demand for low fat and skimmed milk, which has now outgrown whole milk use. Though starting at a smaller consumption base, organic milk sales also posted double-digit gains. Surging demand for milk products has also been felt in the markets for other dairy commodities with butter and American-style cheese also undergoing surging An increase in butter use in particular, is expected to lead consumption rises, up by about nine per cent over 2006. However, higher retail prices for dairy products could reduce demand sufficiently to bolster raw material supplies for manufacturers, the USDA added. Average prices for butter are expected therefore to reach $1.310 (€0.96) per lbs and $1.440 (€1.06) per lbs by next year from the estimated rate of $1.385 (€1.02) per lbs to $1.425 (€1.05) per lbs by the end of 2007. Over the same period, cheese prices are expected to fall to between $1.565 (€1.15) per lbs to $1.665 (€1.22) per lbs from an expected rate of $1.690(€1.24) per lbs to $1.710 (€1.26) per lbs for 2007.

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