Missouri Dairy Business Update  
Volume 7, Number 2
February 2007

Milk Prices

According to Bob Cropp's Dairy Outlook, "Despite a continuation of relatively strong milk production and high stocks of dairy products current and future milk prices remain strong. The December Class III price was $13.47, the highest price for the year, resulting in an $11.89 average Class III price for the year. The January 2007 Class III price was $13.56 and is projected to be much higher for the remainder of the year.
The February Class III price should be about $14.25. CME Class III futures prices increase from February on reaching more than $15.00 by July and peaking in September near $15.50 with an average for the year of about $14.85. In fact Class III futures stay well above $14.00 for all of 2008, averaging in the high $14.00s for the year. Can we expect these much improved milk prices to become reality?

Other factors that will help to support these higher milk prices in 2007 are: A smaller increase in milk per cow due to a milk-feed price ratio below 3:00, the result of higher corn, hay and soybean prices as well as some feed quality problems and reduced use of rBST. A decline in cow numbers by the second half of 2007 as cow slaughter runs higher than a year earlier and the fourth round of CWT being implemented. An expected continued good growth in commercial disappearance will also add support. But, despite these factors it may be a little optimistic to assume current CME Class III futures prices will hold this high through 2008."

Milk Futures on the Chicago Mercantile Exchange
2-20-07
Feb Mar Apr
May
Jun
July
Aug
Sep
Oct Nov Dec Jan 08
Class III $14.35 $14.60 $14.90 $15.14 $15.20 $15.60 $15.75 $15.90 $15.65 $15.21 $14.99 $14.75
Class IV $13.30 $13.60 $13.80 $13.90 $14.00 $14.85 $14.85 $14.85 $15.00 $15.00 $15.00 -
Butter Futures $1.22 $1.24 $1.28 $1.32 $1.32 $1.35 $1.37 $1.39 $1.41 $1.42 $1.42 $1.41

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
2-20-07
1st Q 2007
2nd Q 2007
3rd Q 2007 4th Q 2007
Class III Price $13.25 to $13.55 $12.90 to $13.50 $13.34 to $14.24 $13.40 to $14.40
Class IV Price $12.34 to $12.74 $12.57 to $13.27 $12.56 to $13.56 $12.34 to $13.44
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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