Milk Price Outlook

Cam Thraen, Agricultural Economist 
The announced Basic Formula Price (BFP) for June is $ 13.10 per cwt. for milk testing 3.5 percent butterfat. This price is up $2.22 over the May price and $2.36 higher than June 1997. The adjustment to the M/W base month price of $11.05 is a plus $2.05. The current butterfat differential for June is 21.7 cents. A year earlier the butterfat differential was 11.4 cents.

The strength of the $2.22 increase in the BFP was fueled primarily by the strong cheese and butter market prices in June compared to May. Remember the change in the BFP reflects the change in the MW base month price and the current month adjustment in the product prices. While the base month price declined from April's $11.82 to May's $11.05, cheese and butter prices showed strong increases.

What is ahead for July? In trading on July 9th both barrels and blocks remained unchanged from the previous week at $1.545 and $1.6075 respectively. The butter market remained unchanged in trading on July 10 with Grade AA prices at $1.985. At prices this high buyers are doing what they can to adjust their demand and it is likely that we will see more sideways trading and therefore the upward adjustment to the June MW base month price will not be as large as the previous month.

The current CME BFP futures prices for July and August are $14.50 and $14.08 respectively. The market is saying that, barring an unlikely strong reversal in the butter and cheese markets over the next three weeks, the July BFP should move up again into the $14.00 - $14.50 range.