Despite high milk prices, profitability remains elusive

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Despite an all-milk price of $21 for June, the latest milk-feed profitability ratio from the U.S. Department of Agriculture is by no means rosy.

According to the “Agricultural Prices” report released Wednesday afternoon, the milk-feed ratio for June was 1.83, up slightly from a revised ratio of 1.73 for May. It’s not until ratio reaches 3.0 that it is considered profitable to buy feed and produce milk.

High feed prices continue to put a drag on profitability.

The USDA used the following feed prices to calculate the June ratio: corn, $6.58 per bushel; soybeans, $13.30 per bushel, and alfalfa hay, $180 per ton. The hay price may, in fact, be an underestimation, since many dairy farmers have to pay $250 per ton or more for premium alfalfa hay with a relative feed value of 170 to 185.

The situation stands in stark contrast to another troubled time — the summer of 2009.

Back in June 2009, when the milk-feed profitability ratio dropped to 1.45, corn was $4.03 per bushel and alfalfa hay was $128 per ton, according to the USDA. The all-milk price that month was $11.30 per hundredweight.

Now, high feed costs are canceling out high milk prices.

A ratio below 2.0 is still quite low, acknowledges Greg Scheer, dairy analyst with Doane Advisory Services in St. Louis. Whether or not the ratio will improve anytime soon is yet to be seen. “Milk prices are going to remain high for the next couple of months,” he says. But the feed picture will depend, in large part, on the weather and how well the current crop progresses. “July weather will be critical for corn yields and pollination,” he adds.

Relief may already be on the way. This morning’s “Acreage” report  from USDA, which showed that U.S. farmers planted 92.28 million corn acres this year — above analysts’ expectations — is bearish and should cause futures prices to drop.




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Philip Lewis    
Salem, NY  |  July, 01, 2011 at 07:01 AM

I see no dairy farmers driving new Bentleys and buying Gulfstream jets. Milk trades as a global commodity (a manipulated one) and the buyers, traders and producers will never allow profitability to become excessive. Sustained profit excess would lead to investment and increased production ... and the profit will then decline, once again. The dairy industry functions on the periphery of the capitalist system ... but, nonetheless is subject to the laws of supply and demand. I'll refrain from trying to discuss economic theory and reality in this commentary. Have a great 4th of July. Despite our issues and problems, the USA remains the best place to live and thrive.

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