Friday, June 4, 2010

Class III milk prices for May, 2010 were announced today.  Protein pricing was nearly identical to last month, increasing less than 1cent per lb.  Butterfat prices increased signficantly over the already high levels of April, 2010 by 12 cents per lb to $1.71/lb.

The reasons for the relatively low protein prices and very high butterfat prices have everything to do with supply and demand.  The two charts below show the most current month end inventory levels for Cheese and butter.  Cheese inventories are well above historical levels while butter is below historical levels.  The high levels of cheese inventories have persisted for the last 9 months and have held cheese prices => milk protein prices => Class III milk prices to low levels.

The Class III milk price suffers as a result of the low protein prices.  For an explanation of this link, please refer to an earlier post to this blog explaining this relationship.

The correlation between Class III milk prices and NASS cheese prices can also be re-enforced by the very high correlation shown in the graph below.

The pie chart shown below has been used in many of the prior posts to this blog.  This is the first time protein has contributed less than 50% of the Class III milk price.

When can we expect the low cheese=>protein=> milk prices to change?  Unfortunately, there is nothing in the near term that suggests any change.  The USD is very strong, the New Zealand Dollar is again weak, and the cheese inventories show no sign of shrinking.