Missouri Dairy Business Update  
Volume 6, Number 5
May 2006

Milk Prices

According to the May 18th USDA Dairy Outlook, "The milk feed price ratio is pegged between 2.5 and 3.0. This should signal the end of expansion but is not low enough to trigger a major liquidation. Cow numbers will likely expand through the second quarter of 2006, hold steady in the third quarter, and then begin a decline that will continue through 2007. The delay is predicated on the notion that most producers make their “keep or cull” decisions in the late summer. Lower year-over-year heifer prices this spring may indicate a weakening demand for replacements and could lead to more culling by summer’s end. Expected higher feed prices in the upcoming crop year and continued declines in milk prices throughout 2006 could provide an incentive for smaller operators to exit. However, exit decisions will likely be delayed until later in the season when Milk Income Loss Contract Program payments are assured."

According to Bob Cropp's May Dairy Outlook, "In summary, we can expect some strengthening in farm milk prices as we move towards summer. The April Class III price was $10.93, $3.68 lower than the $14.61 price experienced a year ago. The Class IV price was $10.36. It looks like the May Class III price will be little unchanged from April at around $10.90. But, the Class III price could move back above $11.00 for June to around $11.35 and continue to show strength through September. A September peak close to $13.00 is still possible, but prices higher will only occur if milk production slows more than what now appears the case. Class III futures have strengthened during the past week as cheese prices improved. But, Class III futures still only peak at $12.22 for September. Class IV prices may move above $11.00 by June or July and could peak round $12.00 in September or October. If these prices materialize, the average Class III price for the year could be $11.50 to $11.75 as compared to the $14.05 average for 2005."

2006 Milk Futures on the Chicago Mercantile Exchange
Nov Dec Jan 07 Feb Mar Apr
Class III
Class IV
Butter Futures
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/dafp/psd/MILC.htm

Current USDA Milk Price Forecasts
1st Q 2006
2nd Q 2006
3rd Q 2006
4th Q 2006
Class III Price
$10.65 to $10.95
$11.05 to $11.65
$11.05 to $11.95
Class IV Price
$10.20 to $10.60
$10.25 to $10.95
$10.10 to $11.10
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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