More Milk Income Loss Contract Payments to Come

US - USDA recently announced the first Milk Income Loss Contract (MILC) payment since April 2010. The payment for February 2012 milk production is 38.95¢ per cwt, writes Mary Ledman, Sara Dorland, Sarina Sharp and Karen Endres, Monday 2 April.
calendar icon 3 April 2012
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Based upon Daily Dairy Report calculations there are more MILC payments to come.

Calculated from today’s futures settlement prices for milk, corn and soybeans and an estimated alfalfa price of $201/ton, MILC payments are expected to top $1.00 per cwt from April through July.

Historically the MILC payment was triggered when the Class I price in Boston fell below $16.94/cwt. However, the 2008 Farm Bill included a feed cost adjustment to the payment calculation that is contributing to higher MILC payments.

Keep in mind that the actual MILC payment is derived from USDA’s National Average Dairy Feed Ration Cost calculated by NASS using the all milk price and prices received for corn, soybeans and alfalfa. These prices are published monthly in the “Agricultural Prices” report released by NASS.

The Dairy Dairy Report would like to caution producers that MILC payment estimates based upon futures markets, including ours, are likely to overstate the MILC payment because milk futures tend to be lower than the Class I mover and corn and soybeans futures tend to be higher than the prices received by producers for corn and soybeans reported by NASS. Therefore, use these estimates as a directional guide rather than an absolute value.

CME spot Cheddar block and barrel cheese prices closed unchanged after a quiet trading session today at $1.49/lb. and $1.46/lb., respectively. There was a single bid in the block market that indicates there is some support at this price level. The CME spot butter market continues to weaken.

The market closed 0.75¢ lower at $1.4555/lb. on an offer. However, a below the market bid of $1.4075/lb. was left on the board. This indicates that there is potentially more downside in the cash butter market. Class III, butter, cheese and whey futures posted modest gains on the day.

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