BFP futures prices have declined significantly since the December BFP was announced. The December BFP set a record at $17.34, up 50¢ over November and up $4.05 over December 1997. Over the past several months the cheese market has pushed milk prices to once unthinkable levels.

December's BFP capped an extraordinary year for dairy farmers. For 1998, the BFP averaged a record $14.20, topping the old high by a staggering 81¢ ($13.39 in 1996). The milk price is even more remarkable when considering the 1990-1997 average was $12.03.

Cheese blocks set a record of $1.90 per pound in December. Prices have fallen since that time with an anticipation of increased milk production and resulting cheese production along with a seasonal decline in cheese sales. By the middle of January cheese prices stabilized as we get closer to Super Bowl week which is the highest pizza (and therefore cheese) sales week of the year.

Still, milk prices are declining. The big question for 1999 is how low will milk prices go and how long will they stay there? Milk prices should fall at least $1.00 per cwt. from 1998 as supply begins to respond to the high prices.

USDA's November milk production report does show milk production strengthening. While milk production compared to a year ago was down in July and August, it returned to a slight increase in September and October, but increased 3.0% for November. Milk cow numbers have stopped declining. For the 20 reporting states, milk cow numbers are down just slightly, -0.1% from a year ago. But more important, milk per cow has returned to a more normal increase, being up 2.8% from a year ago.

Mild weather has been a factor across the country for improved milk production per cow. Also a milk-feed price ratio of 4.23 compared to 2.73 a year ago encourages grain and concentrate feeding for milk production.

Milk production in Georgia continues to decline in spite of record prices. Much of the rest of the south are following similar trends. Kentucky for example, had 7.3% less milk and Florida experienced a 2.7% decline.

Two factors could hold down production increases in 1999. First, heifers are in short supply and second, with lower milk prices, bST use will likely fall.

On the demand side, the impact on demand has been minimal. Commercial disappearance was up 2.2% for the first nine months of the year. This increase in demand is due to growing cheese sales since butter and fluid milk consumption is down.

Other major factors which will have an impact on prices include: Federal order reform - Congress will have to override The Secretary of Agriculture if Option 1-B is included in the reform package. Southern Dairy Compact - The Compact will be introduced in the Georgia Legislature early in the session. It will have to pass there as well as be approved by the U.S. Congress. Compact pricing will not occur until 2000. DCMA - Cooperatives have done an excellent job in maintaining premiums in the face of record prices. As supplies increase, they will have to work hard to maintain the premiums. Weather - As usual, the weather may have the final word. The Midwest and Northeast have already had a hard winter but there has not been a major impact on production. The Western states, which have had a mild winter to date, are poised for a rapid growth in production. That leaves the South. We should have a mild winter and very good prices during the first part of the year. By the middle of the year we could be facing low prices and another long hot summer.
 
 

BFP Price Projections
Month	1998 BFP	1999 BFP  (Proj)
JAN	13.25	16.03
FEB	13.32	13.65
MAR	12.81	12.74
APR	12.01	12.33
MAY	10.88	11.95
JUN	13.10	12.01
JUL	14.77	12.37
AUG	14.99	12.65
SEP	15.10	13.05
OCT	16.04	13.30
NOV	16.84	12.97
DEC	17.34	12.55

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