Management Marketing Memo ___

MMM 351

July 16, 1997

CONSENSUS MILK PRICE FORECAST

H. M. Harris, Jr., Extension Ag Economist

Based on the opinions of 25 economists representing universities, farm organizations and co-ops, processors, and government; milk prices have bottomed and are poised to rise through the fall. This opinion was borne out by the basic formula price, which was reported up slightly to $10.74 in June compared to May's $10.70.

The table below shows average forecast values released by Cornell University in June.

**1997 Basic Formula Price Forecast**
	Mean	Min.	Max.
January	11.93	n/a	n/a
February	12.46	n/a	n/a
March	12.49	n/a	n/a
April	11.44	n/a	n/a
May	10.84	10.45	11.65
June	11.14	10.60	11.85
July	11.51	10.70	12.40
August	11.94	11.25	12.95
September	12.33	11.58	13.30
October	12.52	11.78	13.30
November	12.38	11.57	13.50
December	12.08	11.50	13.00

Average	11.92

Clearly, there is a lot of bearish sentiment regarding dairy markets today. Since the support program became ineffective in the late 1980's, I believe forecasters have tended to be overly optimistic when prices were high and overly pessimistic when prices were low. Note from the table below that even if the relatively modest price increase scenario called for by the forecast comes to pass, 1997 prices will be right on track with average prices during the 1990's. 1991 and 1996 were obvious aberrations. It has been my conclusion for several years that producers who can turn a profit at a mailbox price equivalent to $12.00 BFP are in good shape for the long haul.

Basic Formula Price, 1990-1996
and Consensus Forecast, 1997
Year	Annual Average Price


1990 1991 1992 1993 1994 1995 1996 1997	$12.21 $11.06 $11.88 $11.80 $12.00 $11.83 $13.39 $11.92*

*forecast

Among the key factors affecting milk prices are the following:

... A strong spring flush, particularly when compared to the very weak production levels of a year ago.

... An unfavorable milk-feed price ratio.

... Expected lower feed prices this fall. At this writing, December corn is trading at $2.51, November soybeans at $6.11.

... Higher beef prices, which will encourage more culling.

... Lower retail milk and cheese prices, which are only now being reflected in the marketplace.

... Continued economic expansion in the general economy, with almost no inflation.

All in all, while there are some reasons for caution, the emerging market situation for the remainder of 1997 looks promising.

THE CLEMSON UNIVERSITY COOPERATIVE EXTENSION SERVICE OFFERS ITS PROGRAMS TO PEOPLE OF ALL AGES, REGARDLESS OF RACE, COLOR, SEX, RELIGION, NATIONAL ORIGIN, OR HANDICAP AND IS AN EQUAL OPPORTUNITY EMPLOYER.
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H. M. Harris, Jr., Extension Ag Economist

updated 7/17/97