Missouri Dairy Business Update  
Volume 5, Number 3
March 2005

Milk Prices

According to the USDA's March Outlook, "Milk per cow is projected to grow less than 3 percent in 2005 on a daily average basis, a significant but far from complete recovery from the sluggish expansion of the last 2 years. This higher milk per cow would push milk production up about 2 percent, the first real growth since 2002.

Dairy demand is expected to stay good in 2005. The economy and incomes are projected to continue to grow at a relatively strong pace. In addition, food and restaurant spending seems to have shaken off the doldrums of 2002 and most of 2003. Commercial use of milkfat is expected to increase about 1 percent in 2005, while commercial use of skim solids is projected to rise 2 percent, in part because of commercial exports of powder.

Prices in international dairy markets have been remarkably stable thus far in 2005, without even normal seasonal declines. Export supplies from the European Union remain tight, Oceania late-season milk production has done little to make up for earlier declines, and U.S. export supplies of powder have tightened considerably. Meanwhile, demand remains brisk and the U.S. dollar relatively weak.

Key uncertainties in the price outlook include the recovery in milk per cow, an acceleration of the number of farms expanding, the strength of butter and cheese demand, and the path of international powder prices. Given the history of recent years, even the relatively full return of BST is no guarantee of strong milk per cow. On the other hand, the accumulated returns from 2004 and the first half of 2005 may encourage producers to do whatever has to be done to get new facilities built and filled.

If the domestic demand for cheese and butter and export demand for nonfat dry milk all stay brisk throughout 2005, the struggle for the milk supply could keep price declines smaller than expected. On the other hand, significant softening in two of the segments or a sharp break in any one could accentuate the price drop."

According to the March Dairy Outlook published by Bob Cropp at the University of Wisconsin, " Will this stronger recovery in milk production impact cheese prices and milk prices? One would think so. Not that a collapse in milk prices is anticipated, but some softness in prices from what current futures are indicating. But, on March 17th the CME 40-pound block price actually increases ¼ cent to $1.775 per pound on sales while barrels held at $1.44 per pound. March 16th Class III futures were all above $14.00 with August and September at $15.10 and ending the year with December at $13.45. If milk production continues to improve as it did in February, it is hard to believe these prices will hold. Prices a $1.00 lower than these, especially for the more distant months could very easily happen. Yet, even with such a decrease, prices would remain well above the 5 year averages for the months. So we are not predicting doom and gloom, but rather a strong year price wise for 2005."

2005 Milk Futures on the Chicago Mercantile Exchange
3/18/2005
Mar
Apr
May
Jun
July
Aug
Sept
Oct
Nov
Dec
Jan
Class III
14.05
14.01
14.07
14.10
14.35
14.65
14.69
13.80
13.51
13.06
12.90
Class IV
13.00
13.20
13.20
13.20
13.80
13.80
13.80
13.50
13.50
13.20
 
Butter Futures
1.60
 
1.585
 
1.60
 
1.62
1.60
 
1.53
 
est. MILC pmt.
 
 
 
 
 
 
 
 
 
0.04
 
Source: Estimated MILC Payment from http://cpdmp.cornell.edu/

Current USDA Milk Price Forecasts
3/16/05
1st Q 2005
2nd Q 2005
3rd Q 2005
4th Q 2005
Class III Price
$13.85 to $14.85
$12.75 to $13.75
$12.75 to $13.75
$13.25 to $14.25
Class IV Price
$12.45 to $12.75
$12.05 to $12.65
$11.95 to $12.85
$12.00 to $13.10
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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