As printed in our October 10, 2014 issue...

BUTTER PRESSED AHEAD and notched new market highs at $3.06 per pound in late September trading on the CME. Cheese blocks sold for $2.28 on the spot market while barrels were at $2.30 per pound.

U.S. BUTTER STOCKS WERE DOWN 37 PERCENT from the same time last year due to strong domestic demand. August butter inventories were at their lowest point since 2001. Cheese stocks held steady.

OF THE TOP 23 DAIRY STATES, all but Oregon posted year-over-year gains in August. California rose 1.4 percent; Wisconsin, 1.2; New York, 2.7; Idaho, 3.1; and Pennsylvania, 0.6. Florida led the pack at 8.4 percent, and Colorado was up 8. Nationally, milk flow grew 2.6 percent.

FUTURES MARKETS CONTINUE TO HEDGE and trade lower on Class III contracts for 2015 with a median of $17.84 for January through August. October to December 2014 averaged $22.34, with October at $24.29.

THERE HAS BEEN A 39 PERCENT DROP in Fonterra's price forecasts in the last four months for the new production season. That New Zealand co-op handled nearly 25 percent of the world's dairy trade (see page 623).

THAT DOWNWARD SHIFT had New Zealand butter selling for $1.17 per pound while cheese traded for $1.40, the lowest point since November 2012.

NOT ONLY DO ANALYSTS PROJECT a strong spring flush of milk in New Zealand, but EU production expanded 5 percent for the first six months of 2014. Both trends would pressure markets downward.

DESPITE THESE FORECASTS, 2014 should go down as the new all-time high for world milk prices with averages in the $24 to $25 cwt. range.

WITH THIS CONVERGENCE of market conditions, UW-Madison's Bob Cropp has pegged $1.90 butter by December with a lower $1.70 range in early 2015. December cheese could trade near $1.95 and trail off into the mid-$1.70s by summer. That would lead to $17 Class III milk next July.

CHINA WILL REMAIN THE WILDCARD as it accounted for 19 percent of global dairy product purchases and stepped up milk powder imports by an impressive 62 percent from January to August 2014.

EUROPEAN DAIRY EXPORTS TO THE U.S. could grow up to 239 percent if the Transatlantic Trade and Investment Partnership (TTIP) were to gain approval, projected a European Parliament study.

BRIEFLY: Current tariffs on U.S. dairy products exported into the EU have been 42 percent while U.S. tariffs on EU dairy were 20.2 percent. A TTIP would lower those tariffs substantially on both sides. Dairy cow culling was off 11 percent from January to August 2014 when compared to the same time last year. Total cows culled numbered 1.85 million.

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