US – For the last couple of months the Livestock Marketing Information Centre (LMIC) has been forecasting a shrinking dairy herd, to drive prices higher down-the-road. However, prices in the wholesale dairy products have already moved higher in the last few weeks.
Wholesale cheese US average for 500-pound barrels reached $2 per pound in the latest report from USDA-AMS. This number could be revised in the coming weeks but it is the highest since December 2011. Other product prices have also moved higher recently, but none more dramatically than cheese.
The last time cheese prices reached this height, Class III hit a record high price of $21.39 and $21.67 per cwt. in July and August of 2011. It was a short lived high that quickly dissipated bottoming in the spring of 2012. Once again prices are now surging upwards but it will take several more months to reach the previous highs. Fundamentally, the price environment has changed. In 2011 when milk prices reached record high, butter prices had been supporting the butterfat and Class IV milk price for months.
Since the summer of 2010, wholesale butter prices averaged over $2 per pound for nine months. This year butter has only reached over $1.50 per pound in four months. Similarly other product prices have risen over the last few months, but most have not reached the levels of 2011 with the exception of dry whey. Dry whey is already as high as it was when Class III was over $21 per cwt.
Maybe the most important take-away is that this first week was a sign of prices to come, but it will take continued rises in all wholesale components to achieve record high prices again. This will hinge on a continued shrinking dairy herd and supply pressure. The LMIC forecasts indicate Class III will not reach over $21 until the second half of 2013. However, if wholesale prices continue to ramp up high prices may come sooner than anticipated and quell herd culling.
Source: The Dairy Site