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Dairy Situation Report Foresees Better Days Ahead
Wisconsin Ag Connection - 08/26/2009

With milk production expecting to drop below year ago levels during the coming months, the price of milk will start to rebound. Dr. Bob Cropp, professor emeritus with the University of Wisconsin Cooperative Extension, released his monthly Dairy Situation and Outlook report this week--which indicates that the August Class III price will be near $11.20; and Class IV around $10.50. He cites declining cow numbers and lower than normal production per cow increases for the reversing trend.

"Also, the third CWT round this year will remove close to another 87,000 cows this fall... and the opening of schools will increase the quantity of milk needed for fluid consumption," Cropp said in the report. "As fall approaches cheese buyers will begin to build inventory for seasonal sales this fall and early winter. Yet dairy futures continue to show modest increases in prices. Class III futures remain below $13.00 for September, only reaching $13.05 for October, ending the year at just $13.40 and don't reach $14.00 until June of next year."

Cropp says he remains more optimistic that the Class III price will exceed $14.00 by December. However, milk production needs to show declines below year ago levels for this to happen.

"The Class III price needs to get closer to $16.00 before dairy producers experience favorable returns over operating costs. This may not happened much before the start of the second half of 2010," he noted.

The report goes on to say that despite milk production not dropping below year ago levels during the past month, cheese prices have strengthened. The beginning of August CME cheddar barrel cheese was $1.26 per pound and improved to $1.3675 per pound as of August 19, $0.0875 above the new support price. CME cheddar blocks were $1.285 the beginning of August and had improved to $1.40 per pound as of August 19th, $0.09 above the new support price. The anticipated seasonal decline in milk production August through September, and perhaps expecting milk production to start to drop below year ago levels, along with the opening of schools the end of August increasing school orders for cheese and increased fluid milk sales may all be factors for higher cheese prices.

"Yet cheese stocks were still high with June 30 stocks of American cheese 7.1-percent higher than a year ago, and total cheese stocks 7.6-percent higher. Also, cheddar cheese production remains strong compared to a year ago with June production 4.4% higher. Cheese exports for the first half of the year were down 29% from last year," Cropp said.

Meanwhile, the support price for nonfat dry milk was increased to $0.92 per pound. West nonfat dry milk has been trading in the $0.915 to $0.95 per pound range. Exports of nonfat dry milk have increased for four straight months, but June exports were still 55-percent below year ago levels. Exports for the first half of the year were down 54-percent from a year ago.


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