Milk Prices

Milk futures rallied sharply the last day of the July after USDA announced a temporary increase in
the support price for cheese and NDM. From August through October, the support prices are $1.31 for blocks, $1.28 for barrels and 92¢ for NDM. (Previous support prices were $1.13, $1.10 and 80¢)

According to Bob Cropp's Dairy Outlook, "Dairy product prices and milk prices won’t show much improvement until milk production falls below year ago levels. The normal seasonal decline in milk production and the seasonal strong fall sales of dairy products will strengthen milk prices in the months ahead. But, milk production may need to fall 2 to 3% below year ago levels to get the milk price at a level to stop the financial stress now being experienced by dairy producers. That means the Class III price needs to get to at least the $15.00 to $16.00 range. This may not happen until 2010. It appears now that the Class III price may be near $12.50 by September and in the low $14’s by December. Hopefully prices will do better than this and that is possible.

If milk production drops off faster and/or sales show some improvement, prices could be better. National Milk Produces Federation completed the 7th round of CWT herd liquidation the end of June which removed 101,000 cows, and announced the opening of bids for a 8th round of CWT. This action will help to further reduce cow numbers and slow milk production. Further, with these very depressed milk prices the number of dairy producers exiting the industry could increase substantially coming fall. This exiting would decrease cow numbers and milk production. With the loss of equity and credit limits reached, expansion plans by some dairy producers may be delayed well into 2010 and beyond, and banks may be more cautious in financing expansions. The bottom line is that milk prices will improve as we progress through this year with continued improvement in 2010."