While demand for cheese continues to be strong, production continues to outstrip demand. In contrast, demand for butter and nonfat dry milk has been weak, and production of these commodities continues to increase. Large commercial inventories of butter will ensure that butter prices will be held to relatively low levels well into 2000. Most butter and nonfat dry milk plants are running at capacity, and some nonfat dry milk processors are selling product to the federal government at the support price. In combination, these activities point toward lower prices for dairy commodities and lower prices for producers.
Milk remains plentiful in the Upper Midwest and Northeast.
Cow numbers have increased in Western states, an indicator that future milk production will continue to increase. Overall, there are no immediate signs indicating that milk production will decrease any time soon. There have been no significant changes to dairy policies in California since November 1997. The record high prices experienced in 1998 and in 1999 were the result of the existing milk price formulas reflecting the increased value of dairy products. Similarly, the lower prices realized earlier this year were those same milk pricing formulas reflecting the decreased value of dairy products.