June 29, 1999

Dairy processors believe the 1999 basic formula price (BFP) for milk could wind up as the third largest annual average on record, at nearly $13 per hundredweight. The BFP should continue to increase through October as cheese prices remain strong, says the International Dairy Foods Association.

Increasing BFP futures prices on the Chicago Mercantile Exchange and the New York board of Trade, which indicate the price will reach the third highest annual average on record this year, are based on expectations that consumer demand for dairy products, particularly cheese, will continue a strong growth trend. Consistent expanded cheese demand is keeping up with increased milk production, says IDFA.

Total cheese production has increased 5.1% over 1998 for the first four months of the year. "In defiance of past market reaction to additional production, the first three weeks of June showed a price increase of $0.19 to $1.49 in 40-pound block cheddar cheese prices on the CME cash markets," said IDFA. Milk producers saw a 3.5% increase in milk production through May compared with the same period in 1998. For the first quarter of this year, commercial use of dairy products increased 2.5% on a fat basis and 2.6% on a skim basis.

USDA also reports that 1999 fluid milk sales increased 0.8% through April. April sales increased 1.8% over the previous April, driven by lower retail prices.

"By all indications, it looks like 1999 will be a very good year for milk producers," said IDFA President and CEO E. Linwood Tipton. "As government programs such as the price support program have phased down, producers have actually seen some of the best years ever for farm prices."