Dairy Outlook. The dairy markets are holding steady despite the awful 9-11 tragedy. The economy first seemed to freeze and then fall. As of last week the markets for dairy commodities appear unchanged despite a bad economic outlook for much of the rest of the economy.

Cheese prices actually strengthened a bit. USDA reported this week that cheese demand is moderate, but output is still limited due to the short milk supply. Butter prices are seasonally weakening due to reduced demand for cream from ice cream processors, increased supplies of cream from fluid processors, and a rebound in butterfat production due to cooler weather.

Part of the reason dairy commodity and futures markets are showing little change in prices is due to the tight outlook for the milk supply. The USDA's August milk production report showed milk production for 20-major states was down 0.8 percent compared to a year ago.

The rest of the U.S. economy is not nearly as robust as the dairy industry. Most economist expect the U.S. economy will slowdown sufficiently this year to put us into a recession. The government will attempt to combat both a war and the recession by increasing spending and considering additional tax cuts. The economy is not expected to rebound until sometime next year.

It is hard to argue that a recession will have any positive impact on the U.S. dairy industry. High unemployment, less business activity and a reduction in consumer confidence all points to less spending. However, the dairy industry is a lot more resilient than other sectors of the economy. Away-from-home sales of cheese and other dairy products may be substituted for more fluid at-home sales. Thus the net impact of a slowdown in the economy is not clear. (Bill Thomas)

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