With the inability of cheese, butter, whey, and nonfat dry milk to find sustained support keeping the market choppy, subsequent contract months continue to erode any price premium the market may be holding on a seasonal basis. Any price increases of underlying cash have been short-lived. There is sufficient product available to satisfy demand. Buyers of dairy products are not concerned about supply and continue to purchase as needed and are slowly increasing inventory, but not to any great extent. More contracting may be taking place rather than the actual physical being purchased. That eliminates storage and assures the product will be received when needed.

The May Cold Storage report bears this out as inventory for all categories of cheese is running below a year ago. Inventory in May increased seasonally, but not as much as it had a year ago. This would set the stage for stronger prices later in the year if demand increased significantly and inventory would decline more rapidly than usual. This may not take place as retail prices remain rather high limiting a strong increase in demand.

Traders are waiting to see whether milk production will begin to slow due to an increase in culling as low milk prices and high feed prices impact cash flow. There had been much anticipation that some evidence of this would be seen in the May Milk Production report, but that was not the case. Milk production in the country was up 0.6 percent with production per cow 10 pounds higher than a year ago. Not only that, but cow numbers were unchanged from April and were 13,000 head more than a year ago. Milk futures gained ahead of the report in anticipation of a friendly number, but that did not materialize resulting in traders reacting negatively to the report. This resulted in futures eliminating the gains and setting new contract lows. The report indicated that heavier culling is being delayed which may take longer for milk supply to tighten leaving lower milk prices for an extended period.