Montreal, Canada

The Fed’s second quantitative easing program, QE II, might have ignited a fire under commodities prices recently, but not everything is heading higher. Two of the worst performers in the commodities space lately are milk and cheese. Milk prices have been especially weak.

Butter, however, is the best-performing soft commodity in the dairy sector, up more than 100% over the last 12 months. Yet milk and cheese are sputtering. Since October 2009, milk and skim milk prices are almost unchanged while cheese prices have gained more than 15%.

A block of cheese quoted on the Chicago Mercantile Exchange (CME) hit its highest price of the year at $1.77 per pound earlier this year. Recently, however, bulk cheese price fell to as low as $1.40, down 21%.

The broader dairy industry has been struggling in the United States since 2008.

Dean Foods (NYSE-DF), the largest dairy company in America, has seen its stock tank more than 50% this year. Canada’s Saputo (Toronto-SAP) and Kraft Foods (NYSE-KFT) have fared much better.

Saputo, which I used to own in my RRSP, or registered retirement savings plan, is up 26% this year and tracking the price of cheese; as cheese prices have softened, Saputo’s stock has come down lately. Saputo is North America’s largest cheese processors.

Many U.S. dairy processors have been importing mass quantities of non-fat dry milk powder and milk protein concentrate because it’s much cheaper than raising dairy cattle. More supply is coming onto the market and that means one thing – lower milk and cheese prices.