Missouri Dairy Business Update  
Volume 9, Number 1
January 2009

Milk Prices - Rough - but Don't Panic

Shockingly lower milk prices are prompting many Missouri dairy farmers to ask these same questions:

Question: Can milk prices get any worse?

Answer: No, not much. Current prices for Class III and Class IV milk are close to price levels supported by government price supports for butter, cheese and nonfat dry milk.

 

Question: Can anyone make money at these levels?

Answer: No, if you look at USDA's Monthly Cost of Milk Production surveys, no one will be making money the next few months. This table gives you a guide of some of these operating costs by state as of December 2008.

State Dec 2008
Operating Cost $/cwt
New Mexico $11.36
Wisconsin $13.80
Missouri $16.93
Illinois $17.27
California $17.45
Idaho $17.96

 

Question: How much will the MILC payments be?

Answer: The table below gives an estimate as of the date of this newsletter. National Milk Producers has an updated estimation on their website at http://www.nmpf.org/milk_pricing/milc_payments.

Year
Boston Class I
Payment
Actual
Target
Rate
January '09
18.99 
17.17
0.0000
February
13.97 
16.94
1.3365
March
13.01 
16.94
1.7683
April
13.26 
17.07
1.7150
May
13.67 
17.07
1.5294
June
14.14 
17.24
1.3941
July
15.04 
17.24
0.9911
August
16.00 
17.39
0.6248
September
16.91
17.37
0.2049

 

Question: How does the feed cost adjustment work on the new MILC program?

Answer: At this site you can download a simple spreadsheet that demonstrates how the monthly corn, soybean, and alfalfa hay price in USDA's Ag Prices will change the MILC target price which triggers and adjusts MILC payment amounts http://future.aae.wisc.edu/milc.html .

 

Question: How low is my milk check going to go?

Answer: Class III and Class IV prices are quoted on the futures markets and make the headlines. Your milk check is a blend of Class I, II, III, IV + bonuses for rBST free, components and quality. Your milk check will generally be more than $2.00 higher than the quoted class III. The best guide is to look at the past relationship of your farm gate milk price to the Class III price. You can find historical relationships between Class III and mailbox milk prices for Missouri at http://agebb.missouri.edu/dairy/mkt/basis.htm.

 

Question: What is the outlook for milk prices?

Answer: According to Bob Cropp's Dairy Outlook, "Unfortunately, 2009 is starting out with dairy product prices and milk prices at levels not experienced since the depressed period of 2000 to 2003. Prices were forecasted to be lower in 2009, but no one forecasted prices this low.

December, 2008 Class III was $15.28. The January Class III price will be about $4.50 lower around $10.70. The December Class IV price was $10.35 but could fall below $10.00 in January to around $9.80. Class III futures drop below $10.00 for February and March, don’t reach $11.00 until June and only peak out at $13.70 for December. If prices no higher than this materialize, there will be considerable financial stress in the dairy industry. Feed and energy costs have declined some, but not nearly as much as milk prices.

Market fundamentals don’t support prices staying this low. The market likely over reacted in the down direction and price improvements will be experienced, especially by the second half of the year. But, 2009 prices will average well under those experienced in 2008. Milk production may increase less than one percent as cow numbers decline and milk per cow remains below normal increases due to relatively high feed prices and unfavorable returns over feed costs. But, the down turn in the U.S. economy and the world economy will dampen milk and dairy product sales in the U.S. and U.S. dairy exports."

Milk Futures on the Chicago Mercantile Exchange
1-26-09
Jan 09 Feb Mar Apr May Jun July Aug Sept Oct
Class III $10.82 $9.36 $10.01 $10.65 $11.11 $12.06 $13.10 $14.00 $14.50 $14.53
Class IV $9.80 $10.10 $10.15 $10.50 $11.00 $11.00 $11.10 $11.10 $11.70 $11.35
Butter Futures $1.10 $1.11 $1.16 $1.18 $1.22 $1.25 $1.28 $1.30 $1.33 $1.34

Current USDA Milk Price Forecasts
1-22-09
1st Q 2009 2nd Q 2009 3rd Q 2009 4th Q 2009
Class III Price $9.75 to $10.15 $9.84 to $10.54 $10.87 to $11.87 $12.03 to $13.03
Class IV Price $9.41 to $9.91 $9.56 to $10.36 $10.28 to $11.38 $10.74 to $11.84
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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