Here are highlights from the USDA's Dairy Market News for the week of Dec. 17 to 21. Download and read the complete 20-page report.

BUTTER HIGHLIGHTS: A combination of three factors: butter prices declining this week to levels last present during mid-July, cream offerings being heavy and expected to increase, and butterfat tests since July substantially above the last few years, all lead to one result - surplus cream. Cream supplies exceed demand. The surplus is expected to increase with coming holidays. The only real/viable outlet for the surplus cream will be the churn. This leads to a complex situation where manufacturers are averse to building inventories concurrent with downward index prices and retail butter orders are dropping as the window for shipping and stocking store shelves before holiday shopping closes.

CHEESE HIGHLIGHTS: Cheese production across the U.S. continues at accelerated levels. Milk supplies are steady to increasing in many parts of the country. Coupled with reduced demand from Class I and II due to the holidays, more milk is available for cheese manufacturing. This is expected to be the case for the next two weeks. Midwest plants are reporting discounts to Class III pricing for surplus milk from out of the region. 

Cheese prices are mixed this week at the CME Group. Barrels saw increasing prices, while blocks moved both directions. There is currently a larger than typical spread between blocks and barrels of 8.5 cents that is causing some confusion as to market direction in the short term. Barrel activity was heavy this week as prices improved. Barrels traded 32 loads, while blocks had 6 sales. Barrels closed the week at $1.6550 up $.0300 from last Friday’s close, with blocks closed at $1.7400 up $.0150 from last week’s close. Export activity was increased due to the lower prices and CWT assistance was provided for 7.5 million pounds.

FLUID MILK: Manufacturing milk supplies are increasing across the nation going into the holiday period due to the seasonal declines in Class I and II demand. Manufacturing milk supplies are expected to keep dryers at/or near capacity levels in the Eastern and Central regions. Western processors should have adequate capacity to handle the increased volumes. Milk production is increasing steadily in the Northeast, Mid-Atlantic and Central regions with rising protein and butterfat levels. Milk production in California and the Southwest is steady to building slightly, but below year ago levels.

A new yogurt plant opened in Idaho this week and will be ramping up the amount of milk it takes as the schedule allows. Cream supplies are increasing and prices are lower going into the holiday. More cream will be moving towards churns. Butter manufacturers are ramping up production schedules and will be looking for significant price reductions to accept additional volumes.