Missouri Dairy Business Update  
Volume 6, Number 8
August 2006

Milk Prices

According to Bob Cropp's August Monthly Outlook, "The level of milk production and sales of milk and dairy products for the remainder of the year will determine milk prices for the immediate months ahead. The unfavorable milk-feed-price ratio below 3.0 (2.35 in July) is not an incentive for feeding and pushing cows for peak production. But, the number of milk cows remains higher than a year ago, with the July 1st inventory up 100,000 head or 1.1% from a year ago and up 150,000 head or 1.7% from two year’s ago. Cow slaughter is a little higher than a year ago, being up only 0.1% from a year ago January through July 22nd, but running higher in recent weeks. There are ample replacements to maintain and to grow the dairy herd. On July 1, dairy replacements were 100,000 head or 2.7% more than a year ago, and 200,000 head or 5.6% more than two years ago.

As stocks of dairy products are reduced, dairy product prices and milk prices will increase. But, not until cow numbers stop growing and begin to decline will these prices show major increases. As of now, it looks like the Class III price could be above $12.00 by September and increase further for both October and November to the $12.70 to $13.00 range. But, to reach these October and November prices, the cheese needs to increase to at least $1.35 per pound along with solid whey and butter prices. Class IV prices could be around $10.90 for August then increasing to $11.20 for September and peaking around $11.40 for November."

2006 Milk Futures on the Chicago Mercantile Exchange
Jan 07
Class III $11.06 $12.46 $12.80 $12.63 $12.58 $12.53 $12.28 $12.26 $12.48 $12.54 $12.61 $13.20
Class IV $10.90 $11.20 $11.29 $11.35 $11.35 -- -- -- -- -- -- --
Butter Futures $1.21 $1.32 $1.34 $1.35 $1.34 $1.34 $1.35 $1.44 $1.39 $1.40 $1.37 $1.39

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
3rd Q 2006
4th Q 2006
1st Q 2007
2nd Q 2007
Class III Price $11.12 to $11.42 $11.57 to $12.17 $11.36 to $12.26 $11.72 to $12.72
Class IV Price $10.68 to $11.08 $10.78 to $11.48 $10.27 to $11.27 $10.36 to $11.46
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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