US butter and Cheddar cheese prices have recently been breaking records as a result of declining milk production. For most of the past decade milk output has been moving steadily upwards: that for 1999, for example, moving up by 3.5%. This has kept the dairy markets in reasonable balance as consumption, particularly of cheese, has also been moving higher. During last year, farm gate milk prices fell sharply for a number of reasons, including that of a slight oversupply. Dairy farmers have reacted by cutting milk production and every month since December output has been dropping, with the biggest year on year monthly drop so far being 2.4% in March. With consumption still rising, butter and cheese output has fallen and an inevitable escalation of product prices has followed. By the end of last week mild Cheddar block first hand prices had soared to $3,600, or about £2,500 per tonne. This is a rise of 50% over the past year and has brought the US price to a level 12% higher than in the UK. The situation with bulk butter is even more dramatic as prices have soared over 80% during the past year to a recent high point of $4,440 or about £3,200 per tonne ­ about 70% higher than in the UK. Butter prices have eased by about 5% in the past two weeks but Cheddar prices still continue to climb. {{M/E CANNED GOODS }}