Editor's note: The following article was published by Michigan State University Extension and is part one of a series related to the milk-to-feed ratio.
Every month the USDA’s National Agricultural Statistics Service (NASS) publishes a report called Agricultural Prices. This valuable publication contains a wealth of economic data about all aspects of agriculture. One bit of data of particular interest to the dairy industry is the milk-to-feed ratio. The milk-to-feed ratio is a proxy measure for dairy profitability. It is promoted as representing how profitable, or unprofitable, it is for dairy producers to produce milk given current milk and feed prices. This ratio often receives a lot of attention in popular agricultural publications and websites.
To properly evaluate the milk-to-feed ratio one must first understand what data goes into it and how it is calculated. First, the milk-to-feed ratio requires knowledge of four numbers, the: 1) all-milk price ($/cwt), 2) corn price ($/bu), 3) soybean price ($/bu) and alfalfa hay price ($/ton). These prices are collected by the USDA’s Agricultural Marketing Service (AMS) and represent national averages.
Second, the milk-to-feed ratio is calculated as the ratio of the all-milk price in relation to a hypothetical 100 pounds of 16 percent protein-mixed dairy feed composed of a mixture of these three feeds (i.e., corn, soybeans and alfalfa hay). The 16 percent protein-mixed dairy feed consists of 51 pounds of corn, 8 pounds of soybeans and 41 pounds of alfalfa hay. Here is how the milk-to-feed ratio is calculated.
Step #1: Use the corn, soybean and alfalfa hay prices to calculate the price of the 16 percent protein-mixed dairy feed.
16 percent protein-mixed dairy feed value = (51/56 X Cornprice) + (8/60 X Soybeanprice) +(41/2000 X Alfalfa Hayprice)
For example: let’s use the actual commodity prices reported by the USDA in calculating the August 2012 milk-to-feed ratio: corn price, $7.35/bu; soybean price, $16.30/bu and the alfalfa hay price, $205/ton.
16 percent protein-mixed dairy feed value = (51/56 X $7.35) + (8/60 X $16.30) + (41/2000 X $205)
16 percent protein-mixed dairy feed value = $6.69 + $2.17 +$4.20
16 percent protein-mixed dairy feed value = $13.07 (per cwt of feed)
It is important to remember that the 16 percent protein-mixed dairy feed value is expressed in terms of 100 pounds of feed and not per 100 pounds of milk produced.
Step #2: Use the 16 percent protein-mixed dairy feed value and the all-milk price to calculate the milk-to-feed ratio. The August 2012 all-milk price was $19.10/cwt, therefore, the milk-to-feed ratio becomes: