|Missouri Dairy Business Update|
|Volume 4, Number 4|
Higher milk prices in April milk checks have pleased dairymen. In May when dairymen receive their final checks for April's milk production, they will see just how incredibly far and fast this milk market has moved in three months.
When the January issue of this newsletter was published on January 26, 2004, the Class III futures price for April milk was $12.05 per cwt. Now, just three months later the April Class III price that will be announced on Friday, April 28, 2004 will be around $19.60 per cwt. That is a jump of 62% in the price of Class III milk.
How Long Can The Good Times Last?
According to Bob Cropp, Professor Emeritus at the University of Wisconsin, April 20, 2004 http://aae.wisc.edu/future/OUTLOOK/cropp_april_04.pdf
"We need to recall recent history that when cheese and milk prices reach relatively high levels-September of 1999 and September of 2001--- once prices fell, they fell quickly and to low levels. Could this happen again?"
"The answer is yes, except that there are some major differences. First, these earlier peaks were in September and not early like now. By September the supply of butter and cheese has been fairly well built for the strong sales period of Thanksgiving and Christmas and normally milk production soon begins its fall seasonal increase. In comparison, we will soon begin the seasonal decline in milk production and there is little indication that milk production will even be at year ago levels. For both the declines of 1999 and 2001 milk cow numbers were on the increase and milk production improving. So I don't see any return to $10.00 Class III and Class IV prices this year or even in 2005."
"But, if cheese prices have in fact peaked and do start to decline the end of April and early May, they could decline rather sharply as sellers attempt to move any long cheese supplies and buyers wait to see really how desperate sellers are in moving this cheese. Only time will tell, but these historically high cheese prices and Class III prices will eventually decline as there will be both some supply response and demand response. "
"Dairy producers need to decide whether they want to take advantage of the opportunity of milk prices in the upper best 1/3rd historical and above average price ranges via forward contracting with a milk buyer or using futures and options. While it looks like even for the second half of the year milk prices could well stay above the historic average, they could be considerably lower than what dairy futures now offer. We do know that cheese, butter and farm level milk prices are very sensitive to new market reports on milk production, dairy stocks and commercial sales. Predicting exact milk prices very far out is difficult, if not impossible in this environment. The market keeps on surprising us. The use of risk management tools whether they be forward contracting, the use of futures, options or some combination can assist a dairy producer to manage this price uncertainty and to protect an established targeted milk price that fulfills farm business goals."
Historical Missouri milk prices may be found at: http://agebb.missouri.edu/modbu/milkprices.htm
The latest USDA Dairy Outlook forecasts the following prices for 2004.
To view the calculations behind the MILC payments and to check the very latest MILC payments, check the NE Milk Marketing Administrators website at: http://www.fmmone.com/Northeast_Order_Prices/MILC%20calculator/DMLP.htm
Hedging Opportunity Chart for next 12 Months http://www.uwex.edu/ces/milkmarketing/