Missouri Dairy Business Update  
Volume 7, Number 1
January 2007

Milk Prices

According the latest USDA Dairy Outlook, "Forecast milk production for 2007 is 183.0 billion pounds, up slightly from the 181.8 billion pound total estimated for 2006. Milk feed price ratios fell in 2006 compared to 2005 and will decline again this year, albeit at a slower pace. Higher feed prices will be partially offset by higher milk prices. The U.S. dairy herd is expected to decline modestly from 9,115 million in 2006 to 9,040 million in 2007. Recent dairy cow slaughter has been above a year earlier. Some of this slaughter likely is herd liquidation, but most of it may be replacement as cow numbers continued to rise in November and December. Production per cow will continue its incremental upward trend, topping 20 thousand pounds per cow in 2007."

According to Bob Cropp's January Dairy Outlook, "I am still of the opinion that higher feed prices, more normal cow slaughter and continued exiting of some from the dairy farming will lower the nation’s dairy herd in 2007. Dairy exports should stay strong, and barring any major mishaps, the economy should continue to grow supporting a good growth in commercial sales. Under these assumptions we can expect stronger milk prices in 2007. But, it is going to take a bigger decline in cow numbers or a much smaller increase in milk
per cow along with a very good growth in commercial sales (2% or higher) to support existing Class III futures. This something dairy producers need to consider in their marketing and milk price risk management strategies."

Milk Futures on the Chicago Mercantile Exchange
Jan 07 Feb Mar Apr
Oct Nov Dec
Class III $13.56 $14.03 $14.20 $14.66 $14.88 $14.95 $15.30 $15.52 $15.67 $15.30 $14.95 $14.71
Class IV $13.00 $13.30 $13.60 $13.80 $13.90 $14.00 $14.10 $14.10 $14.10 $14.80 $14.80 $14.80
Butter Futures $1.20 $1.27 $1.29 $1.32 $1.36 $1.36 $1.35 $1.38 $1.39 $1.42 $1.42 $1.43

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
1st Q 2007
2nd Q 2007
3rd Q 2007 4th Q 2007
Class III Price $12.55 to $12.95 $12.20 to $12.90 $12.53 to $13.53 $12.75 to $13.75
Class IV Price $11.69 to $12.19 $11.18 to $11.98 $11.28 to $12.38 $11.33 to $12.43
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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