Missouri Dairy Business Update  
Volume 8, Number 6
June 2008

Milk Prices

According to the Bob Cropp's Dairy Outlook, "Milk prices have held higher through the first half of the year than what was earlier predicted. While dry whey prices have weakened to less than 30 cents per pound cheddar cheese prices near or above $2.00 per pound has kept Class III prices well above a year ago. The Class III price averaged $18.22 per hundredweight for the first half of the year compared to $16.11 for 2007. While butter prices have average near a year ago, lower nonfat dry milk prices resulted in the Class IV price below a year ago. For the first half of the year Class IV averaged $15.21 per hundredweight compared to $15.71 for 2007. The higher advanced Class III price has been the mover of Class I prices. This has held the U.S. All Milk price well above a year ago. The U.S. All Milk price averaged near $19.00 per hundredweight for the first half of the year compared to $16.63 for 2007.

The bottom line is that we can expect cheddar cheese prices to fall. As a result, by 4th quarter, Class III prices could be in the $17.25 to $18.50 range. However, current Class III futures don’t reflect these lower prices. Class III futures are in the low $20s through year’s end and in the high $19s through 2009. Dairy producers may want to take advantage of these prices via of hedging, options or forward contracting. With high feed costs Class III prices much below $17.00 will cause a lot of financial stress on dairy producers. A major uncertainty where milk prices will end up is this year’s hay and crop production. Major flooding in the Midwest will reduce corn and soybean production as well as quality hay. Hay and crop prices are likely to move even higher this winter. To the extent this occurs, we could see cow numbers decline quicker and milk production slowing adding strength to cheese and milk prices towards year’s end and into 2009."

According to the USDA Dairy Outlook, "Competition between the U.S. domestic markets and export markets is expected to support relatively strong milk and dairy product prices. Continuing changes in the structure of supply and demand for milk and dairy products in the European Union (EU), reduced product availability from Oceania and other regions, and the lower valued U.S. dollar are still making the United States an increasing supplier to global dairy product markets."

Milk Futures on the Chicago Mercantile Exchange
June July Aug Sept Oct Nov Dec Jan 09 Feb Mar
Class III $20.20 $18.26 $19.27 $20.15 $20.12 $20.12 $20.09 $19.50 $19.50 $19.42
Class IV $16.35 $16.95 $17.25 $17.35 $17.50 $18.00 $17.90 $17.10 $17.10 $17.10
Butter Futures $1.47 $1.53 $1.55 $1.54 $1.55 $1.56 $1.57 $1.58 $1.57 $1.58

Current USDA Milk Price Forecasts
2nd Q 2008 3rd Q 2008 4th Q 2008 1st Q 2009
Class III Price $18.45 to $18.25 $19.12 to $18.62 $18.50 to $17.70 $17.87 to $16.87
Class IV Price $15.36 to $15.06 $16.31 to $15.71 $17.46 to $16.56 $17.47 to $16.37
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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