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Cropp: Class III Milk Price Could Hit $20.00 This Fall
Wisconsin Ag Connection - 08/22/2012

The dairy markets are beginning to respond to the tighter supply-and-demand situation brought on by the summer drought. That's according to Professor Emeritus Bob Cropp with the University of Wisconsin Cooperative Extension. In his monthly Dairy Situation and Outlook report, he says the feed prices and feed availability will be a major factor in what happens to cow numbers and the level of milk per cow the rest of this year and into next; and that means milk supplies will likely be down as well.

"USDA continues to revise downward its forecast for the harvest of corn and soybeans and this year's hay harvest will also be lower," Cropp said. "December corn will likely be around $8 per bushel, November soybeans over $16.00 and soybean meal as high as $480 per ton by December. As of August 1 USDA reports the hay harvest down 16-percent from last year. For some key dairy states like Wisconsin and Minnesota hay harvest was down 18.7-percent and 28.7-percent respectively."

He says the difference is already been seen in the markets, as the CME butter is now running about $1.79 per pound compared to the July average of $1.58. Cheddar barrels, blocks, nonfat dry milk and dry whey prices have also shown strength.

"The August Class III price will be near $17.65 compared to $16.68 in July and the Class IV price $15.80 compared to $14.45 in July," noted Cropp. "Milk prices will only go higher for the remainder of the year. The Class III price could move above $19 for September and above $20 for October to December. The Class IV price could move above $18 by September and $19 for October to December. But, with substantially higher feed costs margins (returns over feed costs) will still be tight especially for those producers in need of purchasing grain and forages."

A slowdown in dairy product production, positive dairy exports and tighter dairy stocks support high milk prices are also playing into the dairy markets. He says total cheese production for the month of June was up just 0.9-percent from a year ago with cheddar production actually down 1.8-percent. Dairy exports have been positive with some slowdown in June. And of course there's the schools. As classes are set to begin, the use of fluid milk will be on the rise once again.

"So whether Class III moves above $20 this year will depend heavily on milk production," he said. "USDA's report for milk production for the month of July shows a continued slowdown in milk production which began in June... but the anticipation of tighter feed supplies and higher feed prices (means) some producers started to increase the selling off of milk cows."

The current Class III futures begin the year at $19.80 and drops below $19 by May. However, this could quickly change as we move ahead and more information comes available on what is going on with cow numbers and milk production, the report stated.

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