Fall From 2004 Record Milk Price Seen as Limited

Late 2004 recovery will leave average farm milk prices near $16 per cwt, up about $3.50 from 2003 and easily a record. Milk prices have averaged above a year earlier since the summer of 2003. The year-to-year rise in farm prices was the largest proportional rise since World War I.

In 2004, the value of milk for cheese exceeded the value of milk for butter-nonfat dry milk by a wide margin. This stood in sharp contrast to most of the 2000-02 period when butter-powder values were dominant. The advantage to cheese is expected to narrow in 2005 as extra milk is expected to lower butter and cheese prices but have little impact on powder prices.

Milk prices are projected to fall to $13.85-$14.65 in 2005, still considerably above those of 2002 and 2003. Much will hang on the size and steadiness of the expansion in milk production, where uncertainty is boosted by the BST situation as well as other milk-per-cow factors. Demand growth is expected to be only modestly favorable but could pick up if the economy finds steadier footing. Lastly, behavior by buyers, stung by this year’s price volatility, may be somewhat erratic.

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

"In light of these milk production trends and commercial disappearance, Friday, December 17th Class III futures settle prices for the first quarter of 2005 appear favorable with January at $13.43, February at $13.10 and March at $ 12.71. In fact, March was the low for the year. If cheese prices do fall to $1.30 or so by early next year, Class III prices by February could be closer $12.00 and March near $11.60. Class III prices likely will increase seasonally as we move towards spring and summer and possibly peaking early in September around $13.85. But, the trend in milk production as we move through the year will determine this outcome.

As of now, it looks like 2005, while not as good as 2004, will still shape up to being a well above average year for milk prices."

Current USDA Milk Price Forecasts
12/16/04	1st Q 2004	2nd Q 2004	3rd Q 2004	4th Q 2004
Class III Price	12.66	19.31	14.54	14.65 to 14.85
Class IV Price	12.43	14.26	12.92	13.10 to 13.40
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/