The main domestic market demand-drivers – cheese and butter – posted solid price gains in past month, says Jim Dunn, dairy market analyst for Penn State University. Here are a few observations from his June Dairy Outlook.

Cheese prices have been rising this past month – 16 cents a pound in a fairly steady climb. Expectations are that cheese demand will be good enough to maintain strong prices through the autumn. The butter price has been just as volatile, spiking in mid-month and ended up to 18 cents a pound more than last month at this time.

MORE MOOS: While California's milk production has leveled off due to water woes, Midwest cow numbers and milk production are growing.

"I estimate the May Pennsylvania all-milk price to be $18.42 per hundredweight, up $0.82 from April," says Dunn. "And dairy futures market prices for Class III and IV milk show higher prices in the rest of 2015."

The latest Class III futures prices for the rest of 2015 average $17.16. Class IV futures prices also are higher for the remainder of 2015, averaging $15.04.

Dairy farmers already know the bad news: 2015 prices are still far below last year's. Dunn's forecast for

the average Pennsylvania all-milk price for 2015 is $18.94 per hundredweight of milk – $6.71. below 2014. The better news is that the all-milk price is projected to keep climbing to a November peak at $19.79.

The strong U.S. dollar continues to challenge U.S. exporters of dairy products. Dairy exports have fallen significantly since their midyear 2014 high, as the strong dollar, the weaker Chinese economy and the Russian embargo all are hurting exports.  With the European Union milk production rising, along with Australia and New Zealand, US exports could continue to suffer. 

The feed factor
The biggest factor here is the good weather in the Corn Belt, which has helped the farmers to get the crop in the ground and off to a good start, says Dunn. And, feed inventories are high from the 2014 crops. With lagging exports, we should have lots of both corn and beans when the crop is harvested and a large carryover into 2016. This portends low feed prices for the next year.

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Penn State's measure of income over feed costs rose 8% in May, as milk prices rose and feed prices stayed the same. The not-so-good news is that IOFC – $6.79 per cow per day – is well below the 2014 value, when milk prices were very high and feed prices were moderate.

More cows coming, more milk
USDA's latest milk production report showed April milk production up 1.8% from a year earlier, a sizable increase over the slower growth of recent months. That doesn't bode well for milk prices, especially

with decreased export prospects and the usual spring upsurge in production.

Continuing year-over-year increases in milk per cow is the real source of milk production growth. And, as Dunn points out, it's happening despite falling milk production in the West with the drought in California and the more expensive feed in the West.

The Midwest, in particular, is expanding production, and seen by some shippers as overwhelming the processors' ability to accept it. California, despite its water woes, still reigns as the nation's largest milk producer, with Wisconsin at number two.

Idaho is now the third largest dairy state, having passed New York once again, notes the Penn State ag economist. Pennsylvania is fifth, with Texas a close sixth.