The November Class III price of only $8.57 per hundredweight was the lowest price since June of 1977. The December Class III was not much better at $9.37 and the prospects for better cheese prices in 2001 are not much better.

Of course Georgia dairy farmers have not experienced this same deep decline in milk price. Since Class I milk prices are moved by the higher of an advanced Class IV or advanced Class III skim milk price, the stable nonfat dry milk prices at support level resulted in a the Class IV skim milk value being $1.44 per hundredweight higher than the Class skim milk value. Adding some very high butterfat values and you have much more favorable Class I prices. In January the Class I FO price for order #7 is $17.09.

Class III prices will probably be below or very near to $10.00 for January and February, with perhaps, a Class III price in the very low $10.00 range for March through May. The Class III price may be in the mid to high $10.00 by June and over $11.00 for the third quarter of the year. The prices for the second half of 2001 are better prices than what was experienced in 2000. However, prices will not increase until the growth in milk production has slowed. November milk production for the 20 reporting states was up only 1.5% from a year ago. Previous increases have been near or well over 3.0%. We can expect the decline in the milk feed price ratio will slow dairy expansions and stop the increase in milk cow numbers from one month to the next experienced for more than a year. The milk feed price ratio was 2.96 for November compared to a ratio of 3.11 for October and 3.87 a year ago. As a result, the relative growth in milk production should continue to slow. And if commercial disappearance continues favorable into 2001, this will also add strength to milk prices as cheese stocks are reduced to less burdensome levels. January through September commercial disappearance for all dairy products was 2.8% higher than for the same period a year ago. Stocks of cheese are 9.1% more than a year ago. But butter stocks continue to decline, down 15.6% from a year earlier.

One uncertainty for the last part of the year is the future of the price support system. Without Congressional actions, the dairy price program will end in September and there will be a major drop in the Class IV price and with it 85% of the Georgia farm price.

Energy cost may play a major roll in production levels for the year. The energy cost crunch is most acute in California and putting some plants at financial risk. Utility cost to farmers have already gone up 7-9 percent. Processing plants are also being impacted. According to the Los Angeles Times, the natural gas bill at California Dairies, a large co-op, almost doubled the first nine months of 2000 and was expected to hit $2.3 million in December, twice October's. January's energy cost was expected to double again to $4.6 million. Leprino Foods, the largest U.S. mozzarella producers, has seen gas costs increase $20,000 per day. With such price increases and potential actual shortages, producers may face lower prices or the possible loss of markets for manufacturing milk.

The future of dairy compacts is uncertain. With the new Congress, the legislative process starts over. Most of the Georgia Congressional delegation support the Southern Dairy Compact, however, there is still much vocal opposition to compacts in Congress. The Northeast Dairy Compact is benefitting the 4,000 producers in the 6-state compact area. In November, the compact paid out $4.2 million. This was 82 cents per cwt. on Class I sales.
 

There are many policy proposals being floated as discussions begin on the 2002 farm Bill. One with short term possibilities is a Class III supplementation program developed by NMPF. The program is designed increase producers' returns in the face of low Class III prices. With this program, USDA would make available funding in each marketing orders any funding needed to bridge the gap between the Class III price and a target price of $11.08/cwt. Additional funds would have to be appropriated to administer this program. The strength of the program is that it does not lower other class prices and it does not increase the cost to processors or consumers.

1. William A. Thomas, Extension Economist, University of Georgia College of Agricultural and Environmental Sciences, Morgan County Dairy Association, January 15, 2001.

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