Michigan Milk Market Update
Dept. of Agricultural, Food and Resource Economics
The Cooperatives Working Together (CWT) program recently completed a fifth round of herd retirements. The results of the five rounds of herd retirements are displayed in table 1. With respect to the increasing average bid each round, recall that milk prices in 2003 were at the tail end of 18 months near support price. Milk prices were higher for the next four rounds and the average bid reflects this pattern as it generally has cost more with each round. Prior to 2007, the program made an effort to remove more milk from growth regions. The most recent round accepted 201 bids with 15 coming from Michigan. As of August 2008, Michigan had 348,000 milk cows, an increase of 10,000 over the previous August. The US had a total of 9.28 million milk cows, an increase of 1.3 percent over a year earlier.
Exports of US dairy products have been up sharply in the past 2 years aided by a weak dollar and slow domestic economic growth. Lower export sales are forecasted for 2009. That activity may be curtailed by a strengthening dollar and a softening international demand with worldwide economic woes. The link between fuel prices and commodity prices continues to be evident from the recent corn and soybean price declines following the significant oil price decline. The price of dairy feed in August was 50% higher than a year earlier. The US price of alfalfa hay was $180/ton, a 30% increase over the previous year.
The milk price outlook depends heavily on feed prices and their effect on milk production. Following a year of 2% growth in milk production, the forecast is for a slowdown to less than 1% growth. The slowing economy likely means fewer meals at restaurants which translates to less cheese consumption. USDA is forecasting Class III prices at $16.55 to $17.85 for the first two quarters of 2009. At the current time, milk futures will need to recover substantially to reach that price level.
More on milk market trends and developments can be found at the MSU extension Dairy Team web site at <http://www.dairyteam.msu.edu>.
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