Milk Prices

According to Bob Cropp at the University of Wisconsin, "Milk prices will set a new record in 2007. The previous record was established in 2004 when the average Class III was $$15.39 and the average U.S. all-milk price was $16.06. If prices hold as forecasted by CME dairy futures, the Class III and Class IV prices will average for the year near $18.00 and the U.S. all-milk price near $19.00. The May Class III price was $17.60 compared to $10.83 a year ago. The May Class IV price was $18.48 compared to $10.33 a year ago. The average U.S. all-milk price was $17.80 compared to $12.00 a year ago. The June Class III price
will reach $20 but stay below the record $20.58 set back in May 2004. The June Class IV price will be about $19.80. Both Class III and Class IV futures are above $20.00 through September and then decline with December Class III below $18.00 and Class IV staying above $18.

But, with farm milk prices increasing and setting a new record, wholesale and retail prices will increase significantly by summer and fall. Higher prices will slow demand growth. While commercial disappearance will continue to grow in 2007, higher wholesale and retail prices are likely to limit the growth to less than 2.0 percent. Record high milk prices in 2004 slowed the growth in commercial disappearance to just 0.6 percent. Fluid milk sales alone dropped by one billion pounds.

Much higher nonfat dry milk prices and dry whey prices are a major factor in setting record milk prices in 2007. Dry whey prices have been over $0.80 per pound in the West. A year ago, dry whey was only $0.30 per pound. This $0.50 increase in dry whey prices adds almost $3.00 to the Class III price."