Weekly Dairy Market Outlook

By Ken Bailey

Penn State University

 

January 30, 2004

 

CME Futures Prices Rally

·        Class III futures peak at $14.60/cwt for September

·        January Class III announced at $11.61/cwt

·        2004 futures averages $1.54/cwt above 5-year average

 

Class III milk futures at the Chicago Mercantile Exchange continue to increase as the market tries to sort out new market information that may affect the future milk supply.  As of January 30, 2004, the Class III futures for February through December, plus the announced January 2004 Class III price of $11.61, produces a 2004 average Class III price of $12.97 per cwt.  Compared to a 5-year average price of $11.42 per cwt, the market is currently $1.54 per cwt better.1

 

There are a number of factors that are contributing to this higher milk price outlook.  First, USDA estimated that the national milk producing herd fell from 9.153 million head on January 2003 to 9.001 million head by December.  Fewer cows produce less milk.  Second, while corn and alfalfa hay prices are below year ago levels, soybean prices are much higher.  January soybean prices rose from $5.51 per bushel in 2003 to $7.82 per bushel in 2004.  Third, carryover inventories for butter and cheese in 2004 are well behind year ago levels, particularly for butter.  Fourth, Monsanto has announced a reduction in the allocation of POSILAC (trademark) bovine somatotropin.  Customers will be allocated 50 percent of their historic shipments beginning March 1, 2004. This shortfall in supply is expected to continue through the end of 2004.  Fifth, the U.S. economy is experiencing an improvement in both gross domestic output and lower unemployment levels.  That has placed a positive floor under milk prices.  Finally, there has been a positive gradual rise in world prices for butter, nonfat dry milk, whole milk powder, and cheddar cheese.

 

The only negative on the horizon for milk prices, and this is a small factor, is that cull cow prices have dropped as a result of the BSE scare.  Slaughter cow prices in the South Saint Paul market fell from a high of $55 per cwt at the end of November to an average $49.88 per cwt for the week January 22-28, 2004.  Lower cull prices would normally lead to less culling and a slight rise in the number of milking cows.

 

Where milk prices will go in 2004 is now anyone’s guess.  Certainly the factors are in place for prices to rise even higher.  It’s just not known yet how these factors will ultimately impact final announced prices.  But, given that prices are well above the 5-year average, dairy producers may want to revisit their marketing plan and lock in more of their future milk deliveries. 

 

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1See my table at http://dairyoutlook.aers.psu.edu/outlook/ClassIIIHist.htm .