Estimates show higher milk prices next year

WASHINGTON – Current USDA estimates place 2006 milk production at 181.9 billion pounds, a 2.8 percent increase above 2005.
This is below the 3.5 percent increase a year earlier, but still above the five-year average of 1 percent to 2 percent growth. Forecast milk production in 2007 is 183 billion pounds, less than a 1 percent increase over 2006.
According to the Economic Research Service’s most recent Livestock, Dairy, & Poultry Outlook, cow numbers will likely decline slightly in 2007 compared with 2006; however, production per cow will continue to increase, albeit at a lower rate than in 2006.
Rising feed prices, especially for corn due to increasing ethanol production, are squeezing milk-feed price ratios and are likely to continue to do so well into 2007.
Cheese. The cheese market is roughly in balance but inventories of “other cheeses” are above those of last year.
Demand for cheese remains strong, especially for mozzarella.
Some reallocation of production to dry products could occur in the balance of 2006. Although cheese demand is strong, supplies are such that any further large rise in prices in the balance of 2006 and the first half of 2007 are unlikely.
The season average price for cheese is projected at $1.230 to $1.240 a pound for 2006. In 2007, the price is forecast at $1.305 to $1.395 a pound.
Smaller increases in milk production in 2007, coupled with strong demand for all dairy products, are the basis for a higher 2007 cheese price.
Whey prices. Whey supplies could tighten further as milk is directed toward nonfat dry milk and skim milk powder production.
Whey prices are projected to average 32-33 cents a pound in the current year and 30-33 cents a pound in 2007.
The market for nonfat dry milk, skim milk powder and whey remains very tight.
There are reports of orders being delayed or shorted. Cumulative exports of powder were trailing year-earlier levels through May; however, the gap had nearly disappeared by September.
Tight domestic supplies have also contributed to high prices. Exports of dry milk and powder could range higher in 2007 because of strong international demand induced by a relatively weaker U.S. dollar and lower availability from Australia and the European Union.
Higher prices are also aided by lower global total stocks of dairy products. A reallocation of milk to Class IV uses would boost Class III prices, keeping cheese and whey prices firm.
An increase in Class IV use to augment dry milk/powder supplies could soften butter prices in the balance of 2006 and into 2007.
Butter. However, demand for butter remains seasonally strong and lower prices are encouraging additional retail activity.
Butter stocks are ample to meet additional demand.
The butter price is expected to average $1.205 to $1.235 a pound in 2006 and $1.250 to $1.370 a pound in 2007.
Related news:
Milk prices should rise in ’07
WASHINGTON – The expected modest increase in milk production in 2007 in the face of strong product demand should boost milk prices in 2007.
The Class IV price is expected to average $10.95 to $11.15 in 2006 and rise to $11.20 to $12.20 in 2007.
The Class III price is projected at $11.70 to $11.80 in 2006, climbing to $12.40 to $13.30 in 2007.
The expected average all milk price is estimated to be $12.80 to $12.90 in 2006 and $13.40 to $14.30 in 2007.