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
Feb Mar Apr
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
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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