The recent mid-August CME dairy product prices indicate that prices are largely driven by supply constraints rather than demand. Several factors suggest this:
1. Cheese Prices and Supply Issues: The price of cheese has surged, with cheddar blocks reaching $2.10 per pound and barrels at $2.2550 per pound, driven by tight milk supplies. Despite steady demand, particularly with schools reopening, the scarcity of milk due to tight heifer and cow inventories is limiting cheese production. This tight supply is pushing prices higher.
2. Butter Prices: Butter prices have also increased, reaching $3.18 per pound, driven by seasonal demand and a decline in cream availability for churning. Although butter demand has been steady, the reduction in production due to limited cream supply is contributing to higher prices.
3. Nonfat Dry Milk: Prices for nonfat dry milk have risen due to strong international demand, particularly for stocking up ahead of Ramadan. However, the overall supply remains constrained, limiting significant price drops.
4. Milk Production Forecasts: The USDA has lowered its milk production forecasts for 2024 and 2025, citing lower cow inventories and reduced output per cow. This projected decline in milk supply is likely to maintain upward pressure on prices across various dairy products.
In conclusion, the current price trends in the dairy market are primarily driven by **supply constraints** rather than an increase in demand. Tight milk supplies, combined with production challenges, are the key factors leading to higher dairy prices.
