US COMMODITIES CORNER

February milk prices drop as cheese inventories remain high - Part three

By John Geuss

- Last updated on GMT

US dairy commodities blogger, John Geuss.
US dairy commodities blogger, John Geuss.

Related tags: Milk

US butter and butterfat prices fell in February 2013 on the back of rising US butter inventories - a build up that has been attributed to increased production and flat export growth. But there is a solution.... US commodities expert and MilkPrice blogger, John Geuss, gave DairyReporter.com a breakdown of price movements last month.
Chart 1

Butter inventories are also higher than normal. This is adversely impacting butter and butterfat prices.

Butter per capita consumption has been stable for years and the population growth is the only driver of increased consumption; so the factors that come into play are production and exports.

Chart 2

A look at the charts for production and exports makes the reasons for high inventories obvious. Butter production has continued to grow, and exports are not growing.

There is only one solution for this problem - lower prices for butter and butterfat. With lower prices, production will decrease and exports will increase.

Chart 3

The demand for non-fat dry milk is driving butterfat availability, but lower prices are inevitable.

Other solids...

Other solids continue to be the bright spot in component demand and pricing. Other solids pricing is based on the value of whey, and whey demand continues to put pressure on the available supply. 

The increased value of other solids continues to be a nice contributor to milk revenue.

Chart 4

Other solids is contributing an extra $2.50 per hundredweight (cwt) to the Class III price, where in the past, the contribution has been insignificant.

Where are prices going?

Until the excess inventories are depleted, there is no hope for higher dairy prices. As explained above, there is little hope for an improvement in butterfat prices. Increased exports of cheese are critical and the Dairy Export Council continues to provide good support for exports.

On the milk supply side, as long as feed costs are high, there will probably be no explosion of milk production.

Clearly, cheese exports are the short and long term solution.

You can see John's month-to-month dairy commodities breakdown at his blog, MilkPrice.

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1 comment

O K

Posted by Carroll,

I assume that John wants the American dairyman to get started right away on producing all that cheese for export .
Farmers probably increase production to cover their cost , driving the price even lower . The mentality seems to be , produce more when prices are UP and Down . People just can't seem to grasp the idea of CURBING production to enhance prices .
Of course , we all could produce more if those dastardly Europeans would just open their markets to the products we produce here . Just think ; the international traders would have more income than ever , and pay even less for the raw material to make the cheese . How much more would the American Dairyman make ????

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