Missouri Dairy Business Update  
Volume 5, Number 5
May 2005

Milk Prices

According to USDA's Dairy Outlook, "Milk and dairy product prices are expected to fall again in 2006. Expansion in milk production is projected to accelerate after more than 2 years of relatively strong returns. Production growth is expected to surpass demand gains (particularly for skim solids), leading to the lower prices. Even so, farm milk prices are projected to stay considerably above the low prices of 2002-03.

The strong returns of late 2003 through early 2005 and the expected good returns for the rest of 2005 have generated strength in milk cow numbers. Relatively few farmers have exited dairying because recent returns have bolstered their staying power, a pattern that is likely to continue through 2006. Meanwhile, the number of producers wishing to add substantial new facilities probably has risen considerably, following a 2-year rest after the last expansionary surge. However, continued tight replacement heifer markets, likely tight alfalfa supplies in the Northwest, the generally lackluster prospects for dairy quality forage, and the lengthening time needed for governmental approvals probably will inhibit expansions during the rest of 2005. By 2006, the effects of these problems should lessen.

Farm milk prices are projected to fall more than $1 per cwt in 2006, following a slightly smaller decrease this year. Although 2006 prices are expected to be much lower than the 2004 record, they are projected to be near the 2000-04 average. Healthy demand likely will remain the key to absorbing record output at such relatively favorable prices."

According to the May Dairy Outlook published by Bob Cropp at the University of Wisconsin, "In summary, while milk production is anticipated to continue this improvement and putting some downward pressure on milk prices, we are not anticipating a collapse in milk prices. Milk production will be declining seasonally. Cheese sales and total commercial disappearance are still above year ago levels. The National Milk Producer Federation is implementing the export portion of CWT. They have $10 million available to subsidize cheese and butter. They have targeted 20 million pounds of cheese and 7 million pounds of butter for export by June 30th. So Class III prices could stay in the high $13 to low $14 per hundredweight range through September. But, clearly as we move towards year’s end and into 2006, there is a high probability that Class III prices will fall closer to historical averages."

2005 Milk Futures on the Chicago Mercantile Exchange
5/27/05
May
Jun
July
Aug
Sept
Oct
Nov
Dec
Jan-06
Feb
Mar
Apr
Class III
13.73
13.76
14.08
14.38
14.45
13.80
13.45
13.15
12.95
12.73
12.73
12.74
Class IV
12.60
12.69
12.74
13.20
13.15
13.20
13.20
13.20
-
-
-
-
Butter Futures
-
-
1.42
-
1.45
1.44
-
1.47
-
-
1.50
-
est. MILC pmt.
-
.03
-
-
-
-
-
0.04
-
-
-
-
Source: Estimated MILC Payment from http://cpdmp.cornell.edu/

Current USDA Milk Price Forecasts
5/19/05
1st Q 2005
2nd Q 2005
3rd Q 2005
4th Q 2005
Class III Price
$14.31
$13.55 to $13.85
$13.10 to $13.70
$13.30 to $14.20
Class IV Price
$12.64
$12.10 to $12.50
$11.90 to $12.60
$11.65 to $12.65
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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