Dairy markets are coping with a volatile mix this spring and summer: faltering gains and expected recovery in milk production, very strong export demand for milkfat, a reduced Dairy Export Incentive Program (DEIP), large nonfat dry milk stocks, and modest gains in commercial use of skim solids. Cheese prices and farm milk prices are expected to be about flat until midsummer and then post moderate seasonal gains. For all of 1995, farm milk prices are projected to average 30 to 5 percent below a year earlier, the result of a 3-percent rise in production and only a 2-percent increase in skim solids sales. In 1996, milk prices are expected to be about unchanged. Both milk output and commercial use of skim solids are projected to grow about 2 percent. While the surplus of skim solids will be substantial, almost all of the available milkfat beyond domestic sales is projected to be exported without subsidy.