The latest milk price predictions from Bob Cropp, University of Wisconsin-Madison. Prices will continue to be strong in 2007.
Milk production growth continues to slow from the 2% even 5% monthly increases from the previous year during 2006. This has been a major factor in strengthening milk prices this year. Compared to year earlier, March milk production for the 23 reporting states was up 1.1 percent. Milk cows were 0.7% more than a year ago, but a continued low increase in milk per cow of just 0.4% held down the increase in total milk production.
Two major factors will hold down milk production in the months ahead. One is cow slaughter which is running well above a year ago. Strong milk prices will require a continued decline in milk cow numbers as the year progresses. Such a decline is still forecasted with the average number of cows for the year down about 0.3% compared to 2006. The second that will slow milk production is high feed prices and reduce use of BST will continue to slow increases in milk per cow. Despite March milk prices almost $4.00 higher than a year ago much higher feed prices resulted in a milk-feed-price ratio just 2.41, down from 2.70 March a year ago. Not only has corn and soybean prices been much higher than a year ago, the price of alfalfa hay was also 20 percent higher. The new hay crop and green chop is just beginning in California which may ease hay prices some in that state.
The March Class III price was $15.09, $3.98 higher than a year ago. Cheese, dry whey and butter prices have all strengthened since then. The April Class III price will be around $16.00. A major factor in higher milk prices has been high dry whey prices. Central dry whey prices are running $0.76 to $0.825 pound compared to just $0.30 to $0.3375 a year ago. Dry whey prices are part of the Class III formula price and for every one cent increase in dry whey prices the Class III price increases about $0.06.
In summary, all factors point to much higher milk prices for all of 2007 offsetting some of the higher feed prices. But, it is still uncertain whether cheese and dry whey prices will hold at levels that will allow current Class III futures prices to materialize. But, also if summer weather is unfavorable to milk production, prices this summer and early fall could be even high. Higher prices may result in some demand resistance similar to what occurred with record high prices in 2004.