USDA ups forecast for dairy retail prices

By Guy Montague-Jones

- Last updated on GMT

Related tags Future

The USDA has once again increased its yearly forecast for dairy retail prices but economists believe an end to price hikes is in sight.

The Economic Research Service (ERS) at the USDA upped its 2011 dairy price forecast from 5 to 6 per cent in its monthly update on food pricing trends - ‘the CPI for food forecasts’. In a broad basket of goods covering everything from cereals to fish, the economists changed only the prediction for dairy prices.

Price pressures

Explaining the update, Richard Volpe, an economist at the ERS, said retail prices were being pushed up by higher fuel prices and strong dairy commodity exports.

Volpe said demand for dairy commodities coming from Korea, Japan and other parts of south east Asia has increased significantly in recent years and over the past few months the weak dollar has compounded the trend.

This has already fed into higher prices at the checkout. The ERS numbers indicate that dairy prices in April were 6.3 per cent higher than a year ago.

Within dairy, milk and butter prices have increased the most – up 10.9 per cent and 16.2 per cent respectively.

Ease in prices expected

While prices continue to climb for the moment, the economists at the USDA do expect pressure on prices to reduce in 2012

Volpe said: “Dairy prices should ease up into 2012 because milk output per cow is increasing. But forecasts are subject to change that far in advance.”

The economist added that it takes time for farms to respond to price signals and then it is difficult to predict how and when farmer action will translate into retail prices changes higher up the chain.

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