Market forces will continue to set milk prices in 2002, because the federal support price is at $9.90 per hundredweight, says dairy marketing specialist Bob Cropp. “Since milk is a perishable product, relatively small changes in either milk production or milk and dairy product consumption result in large changes in farm milk prices,” he points out.
For example, during 1998 a 0.8 percent increase in milk production coupled with a 2.3 percent increase in commercial disappearance pushed the basic formula price from $10.88 in May to a record $17.34 in December. Encouraged by high milk prices and low feed costs, farmers added cows and expanded their operations. Production outpaced disappearance in 2000, and Class III milk prices crashed, ranging from a low of $8.57 in November to a high of just $10.76 in September.
Milk yield per cow usually increases about 2 percent per year. In 2001, bad weather hurt forage quality and reduced harvests of hay and corn silage in many dairy states. The forage situation led to lower milk production per cow. In addition, high prices for replacement heifers convinced many farmers to keep older, less productive cows in their herds rather than buying expensive replacements, according to Cropp. Lower milk production, coupled with declining milk cow numbers nationally, strengthened milk prices in 2001.