Milk Pricing and Policy

Dr. Cameron Thraen, Milk Marketing Specialist, Ohio State University,
Additional milk marketing information by Dr. Thraen

Policy Watch

In the policy arena, the current issue taking center stage is the Milk Import Tariff Equity Act (MITEA) of 2003. This act, now in identical forms in the House (H.R.1160) and the Senate (S. 560) has continued to pickup sponsors. The reported number of sponsors on the House side is 100 (55 Republicans, 44 Democrats, and 1 Independent) and on the Senate side, 24 sponsors.

The act would impose Tariff Rate Quotas (TRQ) on imported milk protein concentrates and on casein products intended for use in food and animal feed. If passed, the new TRQ's would have to be consistent with existing GATT rules.

The intent of this legislation is to stem or slow the importation of milk protein concentrates into the United States. Supporters of the legislation contend that low milk prices and large Commodity Credit Corporation stocks of nonfat dry milk powder are a direct result of these imports. Opponents charge that the trouble lies not with too much by way of imports but with a price support program that is out-of-touch with international market realities. Look for this one to be hotly debated by both sides in the coming weeks.

Market Watch

The near-term outlook for dairy commodity prices, milk component prices, and Class prices continue to sit on the price support floor as the year unwinds. My forecast for the June Milk Income Loss Compensation ( MILC) payment based on forecast dairy commodity advanced prices is $1.79/cwt. At this time, I am forecasting the Class I mover to be $9.71/cwt for June.

Here is what the Chicago Mercantile Exchange (CME) markets look like at the end of the first week of May 2003.

Table 1. Futures Class III Prices: quarterly average settle prices as of 05/07/2003.

Class III futures prices on the CME have been bouncing around on speculative action as the trade attempts to figure out how effective the National Milk Producers Federation (NMPF) Cooperative Working Together (CWT) milk supply control program will be over the next 12 months. However, until some solid news comes in that suggests a significant tightening of production relative to inventories and commercial demand, the markets will stay at these low levels.

Table 2. National Agricultural Statistics Service (NASS) average dairy product prices and the Class III price.

Table 3. Average market pay prices for milk fat, protein, other solids, and nonfat solids.

As I reported in the last issue of BDN, dairy cow slaughter numbers published in the weekly Dairy Market News by USDA/AMS continue to indicate that for the first 18 weeks of 2003, dairy cow slaughter is running about 12 to 13% ahead of last year. Looking back over the last 10 years at comparable periods of low milk prices and high feed prices, this pattern of increased slaughter pulled prices up by anywhere from $1.00 to $2.00/cwt by the third quarter of the year. Let's hope that a slowing of production from this increased slaughter rate, coupled with growing demand as we approach the ice-cream season at full throttle, will serve up better prices for producers.