Dr. Cameron Thraen, Milk Marketing Specialist, Ohio State University,
Additional milk marketing information by Dr. Thraen
Policy Watch
By the time that you read this, it will be old news that dairy product prices for butter and cheese have fallen following the peaks reached in early 2004. Right along with these commodity price declines have come the decline in pay prices for producers. The 2004 came in like a lamb, roared like a lion, but will not go out with a whimper. Overall, 2004 will be a year of record milk prices, and now, producers and processors alike want to know where dairy and milk prices are headed in 2005. Look for the current price levels of butter and cheese to hold steady through the first half of 2005 and then strengthen some in the third and fourth quarters of 2005. My forecasts for dairy commodity prices (butter, nonfat dry milk, cheese, and whey) by quarter are shown in Table 1. These forecast prices translate into the average milk check value shown in Table 2. The producer differential and the gross milk check price are applicable to producers in the Mideast Federal Milk Marketing Order 33.
Table 1. Dairy commodity price ($/lb) forecast for 2005.
| Forecast for Planning Year |
Grade AA Butter
|
Nonfat Dry Milk
|
Cheddar Cheese
|
Whey Protein
|
| 2004 Averages |
1.7846
|
0.8365
|
1.6145
|
0.2325
|
| 2005 Quarter I |
1.4637
|
0.8325
|
1.3322
|
0.2203
|
| 2005 Quarter II |
1.5133
|
0.8267
|
1.3378
|
0.2165
|
| 2005 Quarter III |
1.5595
|
0.8208
|
1.4570
|
0.2131
|
| 2005 Quarter IV |
1.4933
|
0.8200
|
1.4433
|
0.2083
|
| 2005 Annual Average Forecast |
1.5075
|
0.8250
|
1.3926
|
0.2146
|
Table 2. Dairy component ($/lb) and milk check price forecast for 2005 (FO = Federal Order).
| Forecast for Planning Year |
Grade AA Milk Fat
|
Protein
|
Other Solids
|
Nonfat Solids
|
Base Milk Value
|
Estimated Producer Price Differential FO 33
|
Estimated Gross Milk Check Price
|
| Test@Market % |
3.5
|
2.99
|
5.69
|
5.9
|
$/cwt
|
$/cwt
|
$/cwt
|
| 2004 Averages |
2.004
|
2.561
|
0.176
|
0.690
|
15.105
|
0.30
|
15.40
|
| 2005 Quarter I |
1.6184
|
2.0569
|
0.0632
|
0.6856
|
12.1775
|
1.02
|
13.21
|
| 2005 Quarter II |
1.6780
|
2.0121
|
0.0592
|
0.6798
|
12.2295
|
0.74
|
12.98
|
| 2005 Quarter III |
1.7334
|
2.3380
|
0.0557
|
0.6740
|
13.3779
|
0.40
|
13.78
|
| 2005 Quarter IV |
1.6540 |
2.3775
|
0.0508
|
0.6732
|
13.1904
|
0.91
|
14.07
|
| 2005 Annual Average Forecast |
1.671
|
2.196
|
0.057
|
0.678
|
12.75
|
0.75
|
13.50
|
Class prices in 2005 will not be as robust as they where in 2004. Table 3 lists the 2005 forecasts for Federal Order 33 with a comparison to the 1999 to 2004 prices. The statistical uniform price estimate is based on an assumed historical average utilization for each class of milk.
Table 3. Comparison of Class prices in Federal Order 33 from 1999 to 2004 with a forecast for 2005.
| Calendar Year |
Class I ($/cwt)
|
Class II ($/cwt)
|
Class III ($/cwt)
|
Class IV ($cwt)
|
| 1999 |
15.87
|
13.15
|
12.44
|
12.26
|
| 2000 |
13.67
|
12.65
|
9.74
|
11.83
|
| 2001 |
16.26
|
14.42
|
12.93
|
13.49
|
| 2002 |
13.01
|
11.56
|
10.40
|
10.82
|
| 2003 |
13.39
|
10.76
|
11.42
|
10.00
|
| 2004* |
16.95
|
13.69
|
15.10
|
13.00
|
| 2005* |
15.11
|
12.72
|
13.00
|
11.98
|
| Statistical Uniform Price Estimate: $13.50/cwt | ||||
*Quarter IV: 2004 forecast and Quarter I to IV: 2005 forecast.
It is fair to ask, "What could alter the dairy product and milk price forecasts for 2005?" Let's consider these factors as they may push prices up or down going into 2005.
Price enhancing factors
Return to more aggressive culling and a tight heifer replacement market. The current situation shows cull cow prices increasing into 2005. This will provide added incentive to increase dairy cow slaughter back to 2003 levels. Couple this with the Cooperatives Working Together (CWT) program, slated to remove 49,000 head from the milking herd during the last quarter of 2004, and we have the makings for a tight milk supply situation going into 2005. In addition, a post-election rebound in the general economy may cause dairy commodity prices to remain strong. Without any indication that the flow of animals across the U.S. - Canada border will begin anytime soon, these conditions could add another 40 to 50 cents/cwt to the price forecast.
Price reducing factors
Cow numbers are rebounding from their lows in early 2004 and output per cow is also showing that it is getting back on trend. With the announcement by Monsanto, stating that bovine somatotropin (BST) allocations would be increased from 50 to 70% on December 1, 2004, we could look for the tight supply - demand situation evident in 2004 to lessen in 2005. If this is coupled with a growing weakness in consumer demand (due to escalating energy and utility prices and continued weakness in the investment and employment markets), we could see prices for butter and cheese stay lower than those forecasted. This would remove 40 to 50 cents/cwt from my current forecast.
Policy Issues: Mideast Federal Order 33
The number one issue facing dairy farm families in the Mideast Federal Order is that of re-pooling and its impact on the Uniform Market Price. Emergency hearings to consider re-pooling have been granted and are underway in our sister orders, Federal Order 30 and Federal Order 32. Time is a critical element in this process. Fortunately, leadership on this issue is being taking by the Ohio Dairy Producers Association and Ohio Farmers Union. Both of these organizations, representing the interests of Ohio and Federal Order 33 dairy producers, have submitted a formal request to the USDA/AMS Dairy Division, asking for an emergency hearing on this issue.
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.