Dairy Policy and Market Watch

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

Policy Watch

Is it too early to start thinking about the expiration of the current farm bill? No. For dairy producers, there are important elements of that legislation that will expire before discussion on the next agricultural legislation begins in earnest. First, the Milk Income Loss Program Contract (MILC) program runs through the end of FY 2005, which begins October 2004. That is correct, the MILC program will terminate with the final payment month being September 2005. Without an extension authorized by Congress, this could come about at just the same time that market prices are being pressed lower by increased domestic milk production. Second, and much more immediate, the Forward Pricing Pilot program, a program which allows producers to forward price their milk within the Federal Milk Marketing Order system, is set to expire on December 31, 2004. Currently, there are two pieces of legislation in Congress H.R. 3308 and S. 2565 which would authorize a permanent status for this program. With passage of these two bills, all dairy farmers would have the ability, on a voluntary basis, to smooth out the fluctuations in market prices and forward price their milk.

The last item to mention is the National Dairy Equity Act (NDEA). This piece of legislation has been drafted by Congressman Reynolds from New York and has a number of backers. There is not enough space here to go into detail, but suffice it to say, this legislation would create a group of competing compact-like regions within the United States, attempt to set regional premiums in excess of Federal Order prices, and institute a system of 'equalization payments' among producers. This legislation envisions a new layer of control and price-setting for the United States dairy industry. It is not too early to begin to learn about, assess, and evaluate the merits and demerits of the NDEA.
Market Watch
The near-term outlook for dairy commodity prices, milk component prices, and Class prices is fairly robust. A general tight supply and demand balance in the U.S. dairy markets, with new strength in the nonfat dry milk market, spells a continuation of decent prices for dairy producers. With forecast dairy prices above that required to trigger a positive MILC payment, it does not appear that we can expect a positive payment until December 2004 or January 2005. Higher prices in 2004 will translate into increases in cow numbers and increased production in 2005, which will moderate prices back to more normal long-term levels. My forecast for the remainder of 2004 and a preliminary forecast for 2005 is provided in the following tables.

Market Watch

The near-term outlook for dairy commodity prices, milk component prices, and Class prices is fairly robust. A general tight supply and demand balance in the US dairy markets, with new strength in the nonfat dry milk market, spells a continuation of decent prices for dairy producers. With forecast dairy prices above that required to trigger a positive MILC payment, it does not appear that we can expect a positive payment until December 2004 or January 2005. Higher prices in 2004 will translate into increases in cow numbers and increased production in 2005, which will moderate prices back to more normal long-term levels. My forecast for the remainder of 2004 and a preliminary forecast for 2005 are provided in the following tables.

Table 1. Actual and forecast (f) for average dairy product prices ($/lb) from the National Agricultural Statistics Service.

2004
Butter
NFDM1
Cheese
Whey
Quarter I
1.72
0.81
1.40
0.19
Quarter II
2.09
0.84
2.01
0.28
Quarter III f
1.72
0.86
1.56
0.24
Quarter IV f
1.58
0.85
1.45
0.21
Annual Average
1.78
0.84
1.60
0.23
         
2005
Butter
NFDM1
Cheese
Whey
Quarter I f
1.42
0.83
1.33
0.20
Quarter II f
1.53
0.83
1.32
0.19
Quarter III f
1.65
0.83
1.46
0.20
Quarter IV f
1.33
0.81
1.25
0.19
Annual Average
1.48
0.83
1.34
0.19

1NFDM = Nonfat dry milk.


Table 2. Actual and forecast (f) average quarterly market pay prices for milk fat ($/lb), protein ($/lb), other solids ($/lb), nonfat solids ($/lb), and the Class III milk price ($/cwt).

2004
Milk Fat
Protein
Other Solids
Nonfat Solids
Class III Price
Quarter I
1.93
1.95
0.03
0.66
12.77
Quarter II
2.37
3.44
0.13
0.69
19.31
Quarter III f
1.92
2.46
0.08
0.71
14.55
Quarter IV f
1.76
2.27
0.06
0.71
13.28
Annual Average
1.99
2.53
0.07
0.69
14.98
 
 
 
 
 
 
2005          
Quarter I f
1.57
2.11
0.14
0.69
12.03
Quarter II f
1.69
1.94
0.03
0.68
11.90
Quarter III f
1.84
2.22
0.04
0.68
13.33
Quarter IV f
1.46
1.95
0.03
0.67
11.15
Annual Average
1.70
2.09
0.04
0.68
12.42

As a final note, the announced by Cooperatives Working Together (CWT) program will attempt to remove some 47,000 head of producing dairy cows from the national milk herd this fall. Expenditures of CWT monies will be 80% on cow removal and 20% on export subsidies. There will not be a production reduction program this round.

For a complete update on current market conditions, futures, and options markets, and policy issues of importance to Ohio and Federal Order 33 producers go to my web site, Ohio Dairy Web 2004, and click on Cam's Price Outlook.