Wisconsin Ag Connection - Cropp: Milk Prices Will Set a New Record in 2007

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Cropp: Milk Prices Will Set a New Record in 2007
Wisconsin Ag Connection - 06/21/2007

When the Class III milk price hit a record high in 2004, it gave a much needed boost to Wisconsin's dairy economy. And according to Bob Cropp, Professor Emeritus with the University of Wisconsin Extension, it will happen again this year. In his monthly Dairy Situation and Outlook Report, Cropp says the Class III and Class IV prices will average for the year near $18.00 and the U.S. all-milk price would be near $19.00.

Cropp points out that the May Class III price was $17.60 compared to $10.83 a year ago; the May Class IV price was $18.48 compared to $10.33 a year ago; the average U.S. all-milk price was $17.80 compared to $12.00 a year ago; the June Class III price will reach $20, but stay below the record $20.58 set back in May 2004; and the June Class IV price will be about $19.80.

"Both Class III and Class IV futures are above $20.00 through September and then decline with December Class III below $18.00 and Class IV staying above $18," Cropp said in the summary. "Market fundamentals will determine if these futures prices are realized."

USDA's milk production report for the month of May is both bullish and bearish. Cropp says it is bullish from the standpoint that May milk production for the 23 states was only 1.1-percent higher than a year ago, a slower gain than the 1.7-percent for April. But, bearish from the standpoint that milk cow numbers were 3,000 head higher than April and still 0.3-percent higher than a year ago.

"Estimated milk cow numbers began to decline in April and were expected to continue to decline," he points out. "Financial stress, continued high feed prices and the fourth round of CWT herd liquidation resulted in 15 percent higher cow slaughter than a year earlier January through April. However, with expected much higher milk prices for the months ahead it now appears that dairy farmers may be keeping low producing cows in the herd longer."

Compared to May a year ago, milk production continued to increase in California, Idaho and Arizona--but was lower in New Mexico and Texas. In the East, fewer cows dropped production for New York and Pennsylvania, but production was higher in Michigan and Ohio.

The report also looks at cheese prices increases. At the beginning of May, CME 40-pound cheddar blocks were $1.62 per pound and cheddar barrels were $1.58 per pound. On June 13, both 40-pound blocks and cheddar barrels reached the $2.00 per pound mark. As of June 18, blocks were $2.02 and barrels $2.04.

"If milk production shows greater strength and higher prices weaken sales, cheese prices are likely to weaken last quarter of the year," Cropp said. "But, continued strong exports and strong domestic demand for milk proteins will provide support to both nonfat dry milk and dry whey prices. As of now, while prices could weaken from current CME futures prices, Class III and Class IV prices any lower than the $16 to $17 range do not appear likely until next year as milk production expands."

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