Cheese slips but milk futures increase

Cash cheese continued to slip lower but Class III futures moved higher for the second day in a row on the Chicago Mercantile Exchange. The futures markets seem to be reacting to news the milk season is winding down quickly in Oceania. Dairy Market News reports drought has caused the situation to deteriorate quickly on the North Island of New Zealand where milk production is running 30 to 40 percent below last year. Handlers say the drop off is 4 to 6 weeks ahead of normal and they are quite concerned about being able to fill commitments. In Australia, conditions are better but milk production for the full season will probably be around 4 percent lower than a year ago. The monthly Fonterra milk product auction has seen some significant price increases in the last month although some speculate they will not be sustained and should move lower at the next auction.

In Western Europe, the cold winter has delayed pasture growth so the spring flush 4 to 6 weeks late. As a result, year-to-date milk production is running behind normal. Strong domestic demand has also limited the amount of dairy available for export and the E.U. has not used any export intervention so far this marketing year.