Cheese prices are the real story for the month of October.
Inventories of cheese are lower than they have been since 2009 in spite of significant increases in production and demand.
CME prices are typically about two weeks ahead of the NASS prices and as of early November, the CME prices maintaining prices above $2.00 per pound.
The low inventories are keeping cheese prices near record levels. Chart 8 shows the NASS prices ending with the October average price.
The production of cheese continues its long term trend of increases.
Cheese is continuing to increase its dominance of the U.S. dairy industry.
Butter inventories remain tight, but not as tight as in 2010 and 2011.
Butter production continues it growth which started in 2006.
This growth in demand is really fueled by exports (Chart 12) which remain robust, but do not show much growth.
Exports represent about 7% of butter production.
Butter markets are reaching an equilibrium, which will probably result in a softening of butter prices.
Fortunately, the price of butter does not have a large impact on the Class III Milk Price.
Where is it all going?
The rest of 2012 looks very good.
The increased price of cheese to over $2 per pound appears to be holding and can be expected to maintain the Class III Milk Price above $20 per hundredweight for the remainder of 2012.
Although the futures market is not expecting the price to stay above $20 per hundredweight in 2013, there is good reason to expect the above $20 per hundredweight prices to continue into 2013.
You can see John's month-to-month US dairy commodity breakdowns at his blog, MilkPrice.