Sep 23, 2014
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Dairy trading experts offer strategies and practical perspectives to optimize market performance.

Record-Breaking Dairy Prices and a Historical View

Feb 06, 2014

Class III futures, spot cheese and nonfat dry milk prices have surpassed all previous highs – and their strength is backed by real demand.

By Katie Krupa, Rice Dairy

So far, 2014 has already brought record high dairy prices and an optimistic outlook for producers for the year to come. With the higher prices, many producers are wondering how high these prices will go and if these prices will last. While no one knows the answer to those questions, and I am not willing to offer any prognostications, I thought I would offer some historical data on dairy prices.

As of Feb. 4, 2014, the average block-barrel spot cheese price is trading at a record high price of $2.34. This price is a new high for the spot cheese market. Also reaching new highs are the spot nonfat dry milk prices, trading at or above $2.00 for both the Grade A and Extra Grade prices. These spot prices for cheese and nonfat dry milk are helping push the Class III and Class IV futures prices to record highs levels.

In recent days, the Class III futures price for February 2014 reached $23.29, and the Class IV price reached $23.56. To give you some historical perspective, the highest settlement price for Class III was $21.67 in August 2011 and Class IV settled at $21.05 in June 2011, and more recently $21.54 in December 2013.

Starting this rally were the powder prices and the Class IV price. The result was more milk was being pulled out of Class III and into Class IV to meet the growing demand. As supply decreased to Class III, up went the price to catch up and compete with the Class IV market. While I am not sure what will happen from here, the current market seems to have taken a breather, and many people are asking, "Are we at the top," and "Can this rally continue?"

Examining the spot cheese market, this is the 10th time since 2008 that the spot cheese block-barrel average has been over $2.00. This current streak is on its 20th trading day, and that makes it the third longest streak -- 26 trading days in 2008 and 53 trading days in 2011. While we are in unchartered waters at $2.34, prices above $2.00 are not shocking and can stick around for many more weeks.

As previously mentioned, what is most unique about this rally is the strength in both the cheese and nonfat dry milk markets. During the 2008 rally, when the spot cheese average was just under $2.27, the nonfat dry milk price was roughly $1.60-$1.65, whereas today the nonfat dry milk price is over $2.00. Driving this rally is a steady to slightly growing domestic demand and a growing international demand.

As with 2008, the international demand comes with a risk of uncertainty as dairy demand is heavily reliant on a strong international economy, and the economy in many parts of the world is less than stable. But the good news in that the market seems stable today, and we aren’t hearing any rumblings of economic downfall ahead. But you often don’t get much warning for those things.

The three charts below offer a glance of the cheese, nonfat dry milk, Class III and Class IV markets for 2008, 2011 (these two years were chosen because of their higher prices), and the futures market prices for 2014. Because they are futures trading prices, you’ll notice that 2014 prices are all much closer together, which is expected. All three charts have the same scale so you can see how much higher the 2014 futures prices are than the 2008 and 2011 prices.

Krupa chart 2 7 14a

Krupa chart 2 7 14b

Krupa chart 2 7 14c

Another very important factor in 2014 profitability is the cost of feed for dairy producers. Generally speaking, feed prices, especially corn, are lower than 2008 and 2011, and they look to remain that way for the upcoming months. Obviously the weather will dictate what this year’s crop will bring, but the current outlook is favorable for most of the country besides the West, where the drought will likely take its toll on crop production.

The first quarter of 2014 is shaping up to be a profitable time for dairy producers. While no one can accurately predict the future and there are no guarantees, producers do have the opportunity to utilize risk management tools to protect themselves from a turn in the market.


Katie Krupa is a broker with Chicago-based Rice Dairy, a boutique brokerage firm offering guidance, analysis, and execution services on futures, options, spot and forward markets. You can reach Katie at There is risk of loss trading commodity futures and options. Past results are not indicative of future results.

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