'Shocking' Decline in Basic Milk Price Hits for November.

December 8, 1999

The basic formula price for milk hit $9.79 per cwt. for November, the lowest since August 1978 when it was $9.68. The BFP could decline even further, says one analyst. The November BFP declined $1.70 per cwt. from October and now is $7.05 less than a year ago.

One reason for the sharp decline, says Ken Bailey, Pennsylvania State University dairy analyst, is that the butterfat level in Minnesota and Wisconsin was "pretty high" at 3.94%, and the Chicago Mercantile Exchange cheese prices was $1.3031. "So the higher butterfat test had the impact of lowering the base price down when adjusted to a 3.5% butterfat level," says Bailey.

The "negative price adjustment factor" mostly reflects the change in cheese prices between October and November. USDA's surveyed cheese price in October was $1.4388 per pound, and the price in November was $1.2143. "Given what 100 pounds of milk is worth on these cheese prices, the adjustment factor fell $2.20 per cwt.," says Bailey.

He adds, "This suggests that the BFP could fall more next month." Because the November base month price likely will decline from October levels, "and we will have another negative price adjustment since cheese prices fell between November and December," the BFP December level could reach $9.70.