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Editor's note:The U.S. Dairy market is one of the largest revenue generators in the ag industry totaling $27 billion in farm gate receipts last year. The 2006 milk cow herd is 9.0 million head, average milk production per cow is 19,567 pounds and the 2005 average milk price was $15.14 per cwt, just slightly off last year's record level.

To get a feel for the major issues and opportunities facing the dairy industry, we invited a few of those in the know to provide information about the marketplace.

Overview by Hoard's Dairyman, Ft. Atkinson, WI
by Steve Larson, managing editor

There're plenty of reasons to feel good about the dairy industry in 2006.

We have just had 23 consecutive months of the benchmark Class III price being above $13.35. The Cooperatives Working Together program removed 64,000 cows from the nation's dairy herd, and the program again has stepped up to the plate to assist in exporting cheese and butter. The Milk Income Loss Contract (MILC) program has been reauthorized providing a cash flow cushion to dairy farmers should milk prices dip down some months.

Recent gains in overall milk largely were driven by jumps in milk per cow, rather than gains in cow numbers. But many people have been disappointed in how their cows have been milking this winter. Forage quality is not great in many areas. And less milk means higher milk prices.

We believe most "demand" signs are encouraging. A healthy economy should mean healthy consumption. The U.S. economy has grown at the rate of more than 3 percent for 10 consecutive quarters. Last year, the U.S. has experienced a net gain of nearly 4 million jobs. Despite concerns about petroleum prices and higher interest rates, the stock market was poised to end 2005 at a higher level than it started the year.

The strong economy should translate in more meals being eaten away from home. The amount of milk represented by additional cheese people eat as part of restaurant meals and carryout far exceeds the greater amount of beverage milk they consume when eating at home.

Given relatively strong cheese and milk prices, prospects for healthy demand, and reasonable feed costs, we believe there's plenty of room for optimism.

Overview by Dairy Herd Management, Lenexa, KS
by Stan Erwine, associate publisher

There are several developments and touch-points to monitor and consider as the dairy industry consolidates. First, marketers must recognize all industries do not consolidate or integrate identically. Is the industry integrating top-down or bottom-up?

What are the Drivers of the Modern Dairy Market?
Purdue's Michael Boehlje and William Schiek, Dairy Institute of California authored a "white paper" entitled Critical Success Factors in a Competitive Dairy Market which identified and predicted the development and impact of the following drivers of change.

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