Missouri Dairy Business Update  
Volume 4, Number 10
October 2004

Milk Prices

According the USDA's latest Dairy Outlook, "Monsanto has indicated that limited supplies of bovine somatotropin (BST) will continue 'well into 2005, with incremental increases occurring over time,' and some allocations will remain in place. For most of 2004, established users of BST were limited to only half their normal purchases, and no new customers were accepted. On December 1, 2004, allocations will increase to at least 70 percent of historical purchases.

The delay of full BST availability will dampen recovery in milk per cow during the first half of 2005. However, the prospects for substantial recovery in gains in milk per cow remain generally favorable. Some additional BST will be available, relative milk and concentrate feed prices will encourage heavier feeding, forage supplies will be ample even if quality is somewhat mixed, more normal culling may resume if heifer supplies recover, and milk per cow has already shown recovery from the very weak levels of the first half of 2004. Good weather for cows undoubtedly boosted summer milk per cow, but some of the economic factors probably also made significant contributions."

According to the Outlook published by Bob Cropp at the University of Wisconsin,

"In summary, while the probability is high that milk prices will average lower in 2005 as compared to 2004, they should stay above the historical averages. The futures market currently reflects this and producers need to consider these price protection opportunities in there price risk management strategies. History clearly shows that relatively small changes or anticipated changes in milk production or commercial disappearance can have a significant impact on milk prices in an upward as well as a downward direction."

2004 Milk Futures on the Chicago Mercantile Exchange
Class III 14.18 14.18 13.33 12.45 12.27 12.31 12.00 12.04 12.34 12.75 13.25
Class IV 12.50 12.15 11.93 11.75 11.75 11.75 11.75 11.75 11.75 11.75 11.75
Butter Futures     1.47     1.46   1.47   1.48  
est. MILC pmt.       0.22 0.59 0.67 0.65 0.78 0.77 0.64 0.46
Source: Estimated MILC Payment from http://cpdmp.cornell.edu/

Current USDA Milk Price Forecasts
1st Q 2004
2nd Q 2004
3rd Q 2004
4th Q 2004
Class III Price
13.00 to 13.40
Class IV Price
12.25 to 12.75
Source: USDA, ERS, Livestock, Dairy & Poultry Outlook

Historical Missouri milk prices may be found at: http://agebb.missouri.edu/dairy/mkt/index.htm

Hedging Opportunity Chart for next 12 Months http://www.uwex.edu/ces/milkmarketing/

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