2007 Farm Milk Prices Expected to Sail Past Previous Record Year by 15%
By Bob Yonkers, IDFA Chief Economist, Ph.D.
Ten months into 2007, it is clear that this will be a record year for prices in the U.S. dairy industry. Using the regulated federal order minimum milk price for Class III (farm milk used to make most cheeses), the simple average of the announced January-through-September price and the Class III futures contract price at the Chicago Mercantile Exchange (CME) for the remainder of the year, the Class III price is expected to average $17.77 per hundredweight. For perspective, this is more than 15% higher than the previous record of $15.39 set in 2004. And the markets expect high farm milk prices to continue into 2008; with the simple average of the CME Class III futures contract at $16.15, that would make 2008 the second highest farm milk year on record after this year.
In the wholesale dairy product markets, prices are below the peaks set earlier this year but still well above historical averages. At the CME spot (cash) market last week, the price of cheddar cheese in 40-pound blocks closed at $2.00. This is only one cent below the highest monthly average this year set in June, and it indicates that the price of cheese in the United States is still relatively high as we near the end of the year.
The U.S. Department of Agriculture's Agricultural Marketing Service (AMS) reported that the average price for nonfat dry milk in the Central states last week was $2.05 per pound. Earlier this year, nonfat dry milk prices peaked at a monthly average of over $2.18 in July and fell through August, but they have remained near the $2.05 level for nearly two months. The AMS Central states price for dry whey last week was $0.41 per pound, much lower than the highest monthly average on record of nearly $0.78 set in April.
The only wholesale dairy product that will not set a record high this year is butter. At the CME last week, the butter price closed at $1.29 per pound, more than 20 cents below the monthly average this year of $1.50 in June. However, butter prices this year have been below those in 2004, when the CME monthly average price of butter was above $1.50 in eight months.
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Posted October 29, 2007