USDA-ERS Reports Dairy Prices Likely to Remain High Into 2008

According to the recent Livestock, Dairy, and Poultry Outlook report from USDAs Economic Research Service, global demand for dairy will likely keep prices high into 2008 despite increased production. An anticipated higher feed-to-price ratio, high global demand for milk (including nonfat dry milk, or NDM) and cheese, decreased rBST use, and a tight global supply of butter, among other factors, are cited as catalyzing the currentand projectedpricing situation.

As noted in the report: Higher milk and product prices have overcome the higher feed prices this year. The milk-feed-price ratio will likely climb to nearly 3.5 by the end of the summer and could average about 3.0 for the year. The higher expected feed-price ratio indicates a change in the milk production outlook in the second half of 2007. Higher feed prices and lower-than-expected rBST use could keep output per cow below trend this year.

Although an increased availability of milk for the rest of 2007 and into 2008 is expected to moderate prices, precipitous declines from 2007 price levels are unlikely next year, notes the report. Robust demand, both domestically and, especially internationally, will keep prices high. The report also notes that organic milk sales have climbed at double-digit rates, albeit from a small base. Despite a tight world supply of butter, increased production in 2008 could slightly lower prices.

High domestic prices for NDM and whey have resulted from high international prices and rationed supply. However, it is global demand for NDM and other dry milk products and whey that are supporting U.S. prices and constraining disappearance, notes the report. Exports of NDM and whey have soared since 2005, and exports are expected to continue at least through 2008 as world demand continues to outstrip supply.

In short, the report concludes that demand will keep milk prices high both this year and next.