Missouri Dairy Business Update  
Volume 5, Number 8
August 2005

Milk Prices

According to the August Dairy Outlook by Dr. Bob Cropp, "While milk production is higher than a year ago, it is declining seasonally and probably will bottom out in September. Plus, the hotter weather depresses butterfat test and protein test some thus reducing the yield of cheese and butter from 100 pounds of milk. Schools will be starting up which increases fluid milk consumption near 5%. Another factor is the announcement by the National Milk Producers Federation for round three of the CWT program. The objective is to remove about 70,000 cows. This compares to 32,724 cows in round one and 51,757 cows in round two. Bid for participation are being accept from producers August 15th through September
16th. If milk production continues to show strong increases, it will be difficult for CWT to
prevent a decline in milk prices, but the decline may well be reduced.

Despite more milk and increases in the production of cheese and butter, June 30th dairy stocks still were not burdensome. While compared to a year ago, June butter production was up 5.2%, American cheese production up 4.1% and total cheese production up 6.4%, June 30th stocks of butter were 3.9% lower, natural America cheese stocks 2.2% lower and total cheese stocks 3.1% lower.

Milk production is likely to continue increases over the previous year for the remainder of the
year. Thus far, the 23 states produced 3.6% more milk (adjusted on a daily basis) during January through July as compared to last year. Milk cow numbers have increased month to month since March. July cow numbers were 68,000 head higher (0.8% increase) than February. Dairy cow slaughter has been running about 9% lower than 2004, and slaughter numbers were already lower in 2004. So cow numbers will likely stay above year ago levels. And with at least 2% plus more milk per cow, we can expect milk production increases near 3% for the remainder of the year. However, lower milk prices have reduced the milk-feed-price ratio below the favorable ratio of 3.0 plus. The July ratio was 2.90.

It will be difficult for commercial sales of milk and dairy products to move this much additional milk through the market without lower prices. Commercial sales, however, could remain favorable. Retail prices are already lower than a year ago. As compared to June 2004, retail prices were lower by 4.1% for all dairy products as a group, and 10.5% for whole milk, 1.7% for cheese, and 14.2% for butter.

In summary, the Class III price could recover to close to $14.00 for September and then decline seasonally, but yet stay above the 5- year average."
2005 Milk Futures on the Chicago Mercantile Exchange
08/31/05
Aug
Sept
Oct
Nov
Dec
Jan-06
Feb
Mar
Apr
May
Jun
Jul
Class III
$13.59
$14.26
$14.38
$13.58
$13.24
$12.60
$12.40
$12.40
$12.35
$12.46
$12.72
$13.20
Class IV
$13.30
$13.30
$12.80
$12.80
$12.80
-
-
-
-
-
-
-
Butter Futures
-
$1.675
$1.680
-
$1.620
-
-
$1.540
-
$1.540
-
-
MILC pmt.
$0
$0
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
Source: Estimated MILC Payment from http://cpdmp.cornell.edu/
Source: Actual MILC Payment from http://www.fmmone.com/Northeast_Order_Prices/MILC%20calculator/DMLP.htm

Current USDA Milk Price Forecasts
08/18/05
1st Q 2005
2nd Q 2005
3rd Q 2005
4th Q 2005
Class III Price
$14.31
$14.10
$13.60 to $13.90
$12.90 to $13.50
Class IV Price
$12.64
$12.40
$12.80 to $13.20
$12.20 to $12.90
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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