Milk Prices

According to Bob Cropp's Dairy Outlook, "Milk production is expected to continue to increase for the remainder of the year, but at a rate of less than 2%, and perhaps increase by no more than 1% for all of 2009. High feed costs this winter will dampen increases in milk per cow and increase dairy cow slaughter numbers. Milk cow numbers which increased month to month from May of last year through July of this year
will likely continue to decline the reminder of this year and continue to decline going into 2009 with the average herd size for 2009 perhaps about 0.3% lower than the 2008 average. Lower milk prices and high feed costs will likely hold increases in milk per cow this winter well below the more normal 2% increase.

With milk production increasing by less than 2% one would expect milk prices to be at relatively high levels—Class III prices, for example near $20.00. But, a slow down in domestic demand as well as a slower growth in dairy exports will dampen milk prices. Fluid milk sales continue to run about 0.7% below a year ago and indications are that cheese sales have also slowed. High retail prices of not only dairy products but all food along with high gas prices and home heating costs this winter will contribute to a slower growth in domestic sales. Lower world dairy product prices and the strengthening of the U.S. dollar are slowing dairy exports. Milk production in Oceania is beginning its seasonal increase and more product will be available to export.

In summary, as of now it looks like milk prices for 2009 could average near but a little lower than 2008 prices. The Class III price may average in the $17.00 to mid $17.00 range compared to near $18.00 average for 2008. Class III futures, except for October are currently below $17.00 between now and August of 2009. But, since cheese prices have strengthened we can expect some recovery of Class III futures as well."