Milk futures in Chicago reached a two-year high today and butter hovered around the highest levels in at least five years, as booming exports and year-end holiday demand fueled a bull market across the dairy complex.
Cheese-makers and other commercial users have stepped up buying recently, trying to lock in supplies into next year, traders and analysts said. While domestic milk production is increasing, Japan, Mexico and other foreign buyers are gobbling up U.S. dairy products at a record pace.
That’s driving a general urgency to secure supplies before prices go any higher, traders say.
“It looks like everybody decided to get coverage for 2011,” a trader in Chicago-based CME Group’s dairy complex said today. He expects milk prices to climb further in coming weeks.
At today’s close, Class III milk futures for delivery this month were unchanged at $16.88 per hundred pounds, after earlier rising to $16.90, the highest price for a closest-to-expiration contract since $17.03 in October 2008. The Class III contract reflects milk used to make cheese.
Cash-settled butter futures for October delivery fell 0.425 cent to $2.19575 a pound. Yesterday, butter settled at $2.20, the highest price since the contract started trading at CME in September 2005.
Milk futures are up almost 19 percent this year and continued rallying this month even as the government reported rising production and supplies.
U.S. milk production in September rose 3.3 percent from a year earlier, to 15.52 billion pounds, the U.S. Department of Agriculture said in an Oct. 19 report. That marked the seventh consecutive monthly increase. Production for the full year is projected to rise 1.8 percent to a record 192.8 billion pounds, the USDA forecast previously.
The milk market’s recent gains in the face of bearish underscores well-entrenched bullish sentiment, analysts say.
“You’ve absorbed some bearish information the past couple of weeks… and it hasn’t broken (lower),” says Dave Kurzawksi, a broker with Downes-O’Neill/FCStone in Chicago.
“Demand has been very strong all year,” he adds. “We’re in a period of growth for exports. I don’t see any reason for that to drop off right away.”
For the year through August, the U.S. exported $2.37 billion worth of cheese, whey and other products, up 67 percent from the same period in 2009, according to the U.S. Dairy Export Council. Cheese shipments during August surged 95 percent as Japan, Mexico and South Korea bought more, the group said.