Butter closed Dec. 22 at $1.23, down 2 1/2 cents on the week, and 10 1/2 cents below a year ago. Thirteen cars were sold. NASS butter averaged $1.2418, down 0.4 cent. Cash Grade A nonfat dry milk dropped a dime, to $1.55, while Extra Grade remained at $1.45. The NASS nonfat dry milk price averaged $1.0160, down 1.3 cents, and dry whey averaged 41.01 cents, up 0.9 cent.

Downes-O'Neill dairy economist Bill Brooks said a lot of eyes were anticipating the milk production report and cow numbers. He also warned producers to expect higher feed prices ahead. Prices have stabilized a little, he said, and he expects a bit of a lull as we get into the New Year and possibly a small pullback, but he looks for relatively higher prices vs. what we have seen the last few years through the middle of 2007.

Class III futures portend a peak in the mid $14s in September. Brooks believes that's realistic, but it will take some time for production to slow down to where it does have an impact on prices. His forecasts are lower in the first half of 2007 than what the futures indicate and higher in the second half, so he advises producers to pick their target price and then be ready to lock in some milk.

Cheese prices will likely dip to the mid-$1.20s before that happens, according to Brooks. "As we work our way through first quarter and demand slows seasonally and production and components increase and then, as production growth continues to slow and is below average, we'll start to see prices start to pick up."

Source: Capital Press