The run-up in dairy product prices continued Wednesday as barrel cheddar cheese and butter each hit their highest prices ever on the Chicago Mercantile Exchange.
That’s good news for Wisconsin’s nearly 11,000 dairy farms, because the prices they receive for milk are calculated using formulas based in part on butter and cheddar cheese prices.
The price situation is caused by a supply-demand imbalance as the peak consumption season for butter and cheese approaches in the U.S.
Soaring exports of U.S. dairy products this year have left stockpiles well below what are usually seen this time of year.
Butter exports are up nearly 40% over 2013 and cheese exports are up 30%, according to the U.S. Dairy Export Council.
Those higher exports have led to diminished supplies in U.S. cold storage. That is driving prices higher as bulk buyers seek to have enough product on hand for the final three months of the year when demand spikes, said Curtis Bosma, an account manager at High Ground Dairy brokerage in Chicago.
«In a normal year in the dairy industry, we will produce milk, turn it into cheese and butter and then it gets put into cold storage and we have a certain amount in cold storage for our big demand season,» Bosma said.
«This year, because of the export demand we had that was off the charts, there’s nothing in storage. So everyone is staring this huge demand season down and they’re like, ‘We don’t have enough to handle this right now.’
«We never built stocks this year,» he added. That’s causing uneasiness in the market.
«When you are looking at that demand in the future, it makes you a little nervous if there’s no product available,» Bosma said.
Cheese and butter prices are closely watched in Wisconsin. The state is the top cheese producer in the United States and is second only to California in the amount of butter it produces, according to the Wisconsin Milk Marketing Board.
In addition to butter, the exchange operates a daily market for cheddar cheese in 40-pound blocks, known as block cheddar, and cheddar in 500-pound barrels, known as barrel cheddar.
Barrel cheddar settled at $2.4225 a pound on Wednesday. Block cheddar settled at $2.41 a pound — within 21/4 cents of its all-time high — and butter traded at $3.01 a pound, the highest price ever and the latest in a series of record prices this month.
Don’t look for farmers to add to their herds to produce more milk and take advantage of the prices, said Peter Vitaliano, chief economist of the National Milk Producers Federation, based in Arlington, Va.
«Prices are obviously high at the moment for butter and cheese, but they’ve been low in the past and they are going to get lower sometime in the future,» Vitaliano said. «Prices will not stay at these levels.»
Dairy farmers have been burned by falling prices recently.
«Dairy Farmers have generally had lower returns on average over the last five years,» Vitaliano said. «It’s just been a tough time. As a result, you are not seeing very fast expansion given the very good margins producers will receive this year.
«I think there’s a lot of caution out there, a lot of interest in rebuilding balance sheets.»
Prices in 2009 fell below the cost of production and the drought in 2012 also sent production costs soaring.
Source: Journal Sentinel