Missouri Dairy Business Update  
Volume 6, Number 9
September 2006

Milk Prices

According to Bob Cropp's September Dairy Outlook, "If cow numbers continue to decline, and this seems likely, increases in milk production compared to a year ago could remain below 2% for the remainder of the year. This will be closer in balance with sales of milk and dairy products, a plus for improved milk prices. Cheese and butter sales appear to be above year ago levels.

The August Class III price was $11.06, $2.54 lower than a year ago. August Class IV price was $10.64, $2.80 lower than a year ago. September prices will be higher but still well below year ago levels with Class III near $12.25 ($14.30 a year ago) and Class IV near $11.50 ($13.75 a year ago). Although relative increases in milk production has slowed the ample stocks of butter and cheese along with milk production and milk component composition improving seasonally, there may not be any major increase in milk prices until the second half of next year. That is, with Class III prices above $13.00. Class III futures are settling in the $12.40 to $12.60 range through June of next year. This could well be the price pattern unless milk production slows more than anticipated and/or commercial disappearance is considerably stronger. But, to even reach the $12.40 to $12.60 Class III prices cheese prices need to increase further to at least $1.32 per pound and above, assuming whey prices remain strong."

2006 Milk Futures on the Chicago Mercantile Exchange
Jan 07
Class III $12.25 $12.54 $12.47 $12.50 $12.41 $12.30 $12.36 $12.37 $12.43 $12.62 $13.28 $13.55
Class IV $11.50 $11.40 $11.40 $11.40 -- -- -- -- -- -- -- --
Butter Futures $1.31 $1.32 $1.32 $1.31 $1.34 $1.36 $1.37 $1.36 $1.39 $1.37 $1.38 $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/FSA/webapp?area=home&subject=prsu&topic=mpp-mi

Current USDA Milk Price Forecasts
3rd Q 2006
4th Q 2006
1st Q 2007
2nd Q 2007
Class III Price $11.32 to $11.52 $11.91 to $12.41 $11.41 to $12.21 $11.72 to $12.72
Class IV Price $10.52 to $10.82 $10.85 to $11.45 $10.32 to $11.22 $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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