Dairy prices have also climbed at supermarkets, and likely will continue rising next year, according to government projections.
Grade AA butter averaged $3.57 a pound at the retail level during September, up 27 percent from a year earlier and the highest monthly price, not adjusted for inflation, since November 2004, according to the U.S. Bureau of Labor Statistics.
Retail dairy products prices are expected to increase 4.5 percent to 5.5 percent next year, the largest estimated rise among all food categories, the USDA said earlier this week. The Consumer Price Index for all food is projected to rise 2 percent to 3 percent.
Milk’s rally comes amid surges in other farm products, including grains, livestock and cotton, and partly reflects heightened speculator buying across many commodity classes, analysts say.
The 19 percent gain in milk futures this year lags that of corn and wheat, up 37 percent and 29 percent, respectively. Cotton futures are up 63 percent.
“Milk is one of the cheapest commodities lately,” Kurzawksi says, meaning some investors expect the price to rise further to catch up with gains in other markets.
While stronger milk prices restored the dairy industry’s profit earlier this year after a money-losing 2009, producers still face plenty of risks, analysts say. Among the biggest concerns is a surge in feed costs, after corn soared to two-year highs above $5 a bushel last month.
Additionally, milk prices are expected to drop near $14 per hundredweight early next year, based on CME futures.
Producers should consider locking in a floor price for their milk through put options, Kurzawksi says, but still try to be in position to capitalize on any additional market strength in 2011.
“I’d leave as much room to the upside next year,” Kurzawksi says.