Missouri Dairy Business Update  
Volume 6, Number 6
June 2006

Milk Prices

Low Dairy Profitability Likely Taking the Wind Out of Expansionary Sails "Milk production for 2006 is projected at 181.9 billion pounds, an increase of 2.8 percent from 2005. June’s forecast is reduced slightly from May’s. Expected higher grain prices, hot dry weather in the West and sharply lower milk prices in 2006 compared with last year have likely pressured producer returns. The milk feed price ratio is at its lowest level in 3 years. The low profitability ratio may be taking the wind out of the expansion.
Source: June 15th USDA Dairy Outlook,

According to Bob Cropp's June Dairy Outlook, "May milk prices may well be the low for the year with prices showing strength between now and September. But, don’t expect any sharp price increase. Class III futures weakened last week with September Class III futures settling around $12.35. But, September Class III prices higher than this is quite possible and even peaking near $13.00 are not without possibility. There are several reasons suggesting some price recovery. The increase in milk production above a year ago has
slowed for the past two months due to a smaller increase in milk per cow. Milk production has peaked for the year and is declining seasonally. Prices for high quality hay in the West are $16 to $21 per ton higher than a year ago. The milk- feed-price ratio dropped to 2.33 in May, well below a 3.0 ratio considered favorable for feeding cows for peak production. Slaughter of dairy cows, which has been lower than previous year levels, has been running 3% to 5% higher than a year ago. But, don’t expect the size of the nation’s dairy herd to drop below year ago levels any time this year. A decline in cow numbers is needed before a substantial recovery in milk prices will occur.."

2006 Milk Futures on the Chicago Mercantile Exchange
Nov Dec Jan 07 Feb Mar Apr May
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
USDA Dary Forecast Tables are available at: http://www.ers.usda.gov/publications/ldp/xlstables/dairyproject.xls

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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