Butter prices are slipping, with a high likelihood of falling below $2.10 per pound this month for the first time since November 2016. Nonfat dry milk prices topped $1.10 per pound in October for the first time since December 2014, yet they remain below the 10-year average price of $1.20.

Even with these two market downturns, milk prices are nearing the highest levels of the past five years.

What gives?

Just say cheese.

Cheese prices have eclipsed the $2 per pound mark since September and have been running well above year ago levels since early summer. As a point of reference, last November and December cheese prices averaged below $1.40 per pound.

In an ideal situation, all dairy products would be providing a boost to milk prices. But in reality, this is rarer than many might think. In the past 20 years, only about 28 percent of the time have monthly butter, cheese, and nonfat dry milk prices all been above year ago levels at the same time. And if the industry could choose one product to be leading the charge for higher prices, it would be cheese.

That statement in and of itself is not a big surprise, given that just over 40 percent of U.S. milkfat production is allocated to making cheese. But the extent of the correlation of cheese prices to milk prices tells is a bit of a surprise relative to butter and nonfat dry milk.

Since 2005, the correlation of monthly wholesale cheese prices to the U.S. All-Milk price is a whopping 0.91. That’s compared to 0.73 for nonfat dry milk and only 0.38 for butter. So, it’s a good bet that if cheese prices stay strong, milk prices will follow.

But will these higher cheese prices have staying power into 2020?

There are reasons to be optimistic for cheese exports next year, with the European Union, New Zealand, and Australia all projected to post only minor gains, if any, in milk output and cheese exports. Along with the U.S., these nations have accounted for 84 percent of world cheese exports in recent years. However, since 2018, exports have only accounted for 6 percent of total U.S. cheese use, leaving the domestic market as the biggest wildcard on the demand side. The state of the U.S. economy and consumer willingness to pay up for cheese will go a long way in determining cheese, and therefore milk, prices in the months to come.