02/18/08 What's Driving Milk Prices?

What is Driving Milk Prices? I'm Greg Martin with today's Line On Agriculture. Cruising through the aisles of your local grocery store you often see people react in various ways. Sometimes they grab an item, check the price and then grab several more. Other times as they shake their heads they slowly, begrudgingly place the item in the basket. Usually about the time my lovely bride and I hit the dairy case, I start seeing that reaction. Elvin Hollon, economist for Dairy Farmers of America says at least for the farmer, '08 looks pretty good&but! HOLLON: As far as outlooks we tend to look at '08 as being stronger than the average year and that's usually good news until you are coming right behind the best year ever and so we continue to see decent milk prices on a historical level but when you put those up against what we look at cost of production numbers to be, it looks to us like middle to end of the year margins are going to be pretty crushed. Hollon says that during times of high prices there can be a bit of a shuffle in the export market. HOLLON: Some of the things that are pulling milk prices up would be international demand. We continue to see export sales of dairy products. Now the explosion in whey, that's kind of over with now as far as record high prices but there is still product moving. And during that high price level like most consumers do when prices are up, users of whey products  some reformulated, some backed off and the same with nonfat dry milk, exports are still steady. We still see quantities moving and that's going to help support our prices but probably not at $2 per pound counter price. Prices, while good are affected by a number of things according to Hollon. HOLLON: We continue to export cheese and some butter and I don't think we have rally hit our stride yet in doing that like we did in nonfat so that may be out in front of us. Most folks in the federal order system use class 3 price as sort of a monitor or barometer I guess and we would see that averaging as somewhere in the upper 16 to very low 17 average for the year but still in the flush month dipping down a little below $15. And again historically that would have been a really good price level but when matched up against feed costs next year it's not going to look nearly as good. And with a slow down in the economy that affects another aspect of pricing. HOLLON: The economy is slowing and when the economy slows the out-to-eat sector of the economy slows and a lot of dairy demand is on that out to eat menu and so that could also push inventories up and push prices down. That's today's Line On Agriculture. I'm Greg Martin on the Northwest Ag Information Network.