NEWS RELEASE

Current High Price Levels May Hurt Dairy Consumption

Butter prices continue upward surge, milk futures prices continue to rise

(Washington, D.C.- June 15, 1998) The second half of 1998 may prove a hard year for dairy sales due to current high prices in the butter and cheese markets, the International Dairy Foods Association (IDFA) said today. In trading at the Chicago Mercantile Exchange (CME) on Friday, wholesale butter prices -- already unusually high -- jumped another 16 cents a pound to $1.90 for all grades. This follows Thursday's rise on the CME wholesale cheese market of 5 cents per pound for barrel cheese, to $1.495 a pound.

Last year's prices in mid-June were significantly lower: The wholesale butter price was only $1.05, while barrel cheese was $1.125.

As for the Basic Formula Price (BFP), which is the monthly price used by the government to set minimum milk prices for farmers, economists expect a major upswing in the June price, which will be announced in early July.

"While the BFP for May was $10.88 per hundredweight, yesterday's settled futures markets set the June BFP at $13.55 on the Chicago Mercantile Exchange and $13.71 on the Coffee, Sugar & Cocoa Exchange. That's a huge jump -- almost three dollars above May," said IDFA Chief Economist Bob Yonkers. All of the BFP futures contracts through October are trading at well above $13.00 per hundredweight, he added.

"We're seeing some of the highest prices ever for this time of year at the wholesale level on cheese and butter, and that has a strong impact on the cost of all dairy products," Yonkers said. "Consumers tend to buy less as prices rise, and we're concerned that sales of butter, ice cream and many other dairy products may be sluggish as the year progresses."

Yonkers said the current tightness in butter markets is largely due to subsidized exports of butter in the past year under the Dairy Export Incentive Program (DEIP).

"Nearly 35 million pounds of butter have been allocated DEIP subsides since last July," he said. "While that may have looked like a good idea when butter prices were low, it's hurting us now."

In addition, butter production was down 7.4% in the first quarter of 1998 and down 12.5% in April compared with last year. Commercial butter stocks are at very low levels -- down 22% as of April 30.

In response to this tightness in the U.S. market, IDFA has asked the U.S. Department of Agriculture to increase the quantity of butter and anhydrous milkfat imports that are eligible for the in-quota tariff rate by an additional 40 million pounds. This action could serve to bring supply and demand conditions in the domestic butter market into closer alignment.

"Wholesale butter prices affect all dairy product prices and many other food product prices, and thus have a significant impact on consumer purchases," said IDFA President and CEO E. Linwood Tipton.

The International Dairy Foods Association is the Washington, DC-based organization representing the nation's dairy processing and manufacturing industries. The IDFA is composed of three constituent organizations: Milk Industry Foundation (MIF), National Cheese Institute (NCI) and International Ice Cream Association (IICA). MIF has 205 member companies that process 85 percent of the fluid milk and fluid milk products consumed nationwide; NCI has 95 member companies that manufacture 80 percent of the cheese consumed in the U.S.; and IICA has 170 member companies that manufacture and distribute an estimated 85 percent of the ice cream and ice cream-related products consumed in the United States.