The chart of the week is the international cheddar and the CME block cheese markets. US cheese inventories are historically ample and September US cheese output was 4% larger than the previous year. Still, the cheese markets are moving higher. Actually, basically all of the dairy markets are moving upward. The first major culprit is the decline in US milk output. The trade is anticipating a decrease in the available supply of dairy products in the coming months. But another major reason is due to the recent run up in the international dairy markets. The international cheddar, butter, whey and milk powder markets have all surged more than 30% since the beginning of September. European Union dairy farmers, which typically account for 47% of the world’s cheese production and 40% of the world’s cheese exports, have been challenged during the past year with poor profitability leading to rising dairy farmer protests. EU milk production is declining and decreases should intensify in 2010. Additionally, the value of the US dollar has fallen roughly 18% during the last eight months. Both of these factors encourage US cheese exports which was the major impetus behind the inflated cheese and dairy prices in 2007-08. And the situation are similar for the rest of the dairy complex.

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