Missouri Dairy Business Update  
Volume 6, Number 11
November 2006

Milk Prices

According to Bob Cropp's November Outlook, "As of November 17th, Class III futures were near $13.80 from November through May of 2007. These are very strong prices. For these prices to hold cheese prices need to be at least $1.40 per pound with dry whey prices staying in the high $0.30s per pound. It seems this will require some evidence that cow numbers will continue to decline and milk production to drop below a 2% increase. After running below normal for several months cow slaughter in September and early
October was near normal at 12 to 15% higher than the previous year. But, for the last three weeks of October cow slaughter was only 1 to 3% higher than the year before. Further dairy replacement numbers are very adequate to not only maintain, but to grow the dairy herd. However, the market for cheese seems to be reacting to the possibility that with the significant increase in ethanol production driving corn prices to $3.50 per bushel and higher hay prices this winter the higher over-all feed costs will stimulate additional cow slaughter and a greater number of dairy producers exiting dairying in 2007. This is quite possible. But, dairy producers need to carefully evaluate their marketing strategies. As of November 17th, the futures market and cash forward contracts offered by milk buyers are currently quite attractive. Class III futures were
above $14.00 for June and peaked at $14.60 for September. Class III futures averaged $14.07 for
the 2007 year. Will cheese prices hold at levels to result in prices this attractive in 2007? No one
can say for sure."

2006 Milk Futures on the Chicago Mercantile Exchange
Nov Dec Jan 07 Feb Mar Apr
Class III $12.85 $13.59 $13.37 $13.33 $13.40 $13.73 $13.75 $13.84 $14.15 $14.40 $14.49 $14.15
Class IV $11.60 $11.91 $13.30 $13.30 $13.30 $13.30 $13.30 $13.50 $13.50 $13.50 $13.50 $13.50
Butter Futures $1.27 $1.27 $1.31 $1.33 $1.37 $1.38 $1.40 $1.41 $1.40 $1.41 $1.43 $1.44

Future MILC estimates may be derived from the following formula:
($13.69 - (Higher of Class III or IV price) *$0.34)
MILC-X Fact Sheet, Payment Calculations, and USDA Details are available at http://www.fsa.usda.gov/FSA/webapp?area=home&subject=prsu&topic=mpp-mi

Current USDA Milk Price Forecasts
4th Q 2006
1st Q 2007
2nd Q 2007 3rd Q 2007
Class III Price $12.17 to $12.47 $12.12 to $12.72 $12.00 to $12.90 $12.75 to $13.75
Class IV Price $11.72 to $12.12 $11.54 to $12.24 $10.91 to $11.91 $11.27 to $12.37
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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