Is Wednesday’s gloomy milk-feed ratio even worth considering?

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On Wednesday, the U.S. Department of Agriculture released a particularly gloomy milk-feed profitability ratio.

USDA’s report reflects high feed costs and falling milk prices. The preliminary ratio for February, cited as 1.58, is down 0.14 points from January and reminiscent of the dairy recession of 2009.

Bad news aside, some people question whether the milk-feed ratio is even worth considering.

“A better tool to use is milk income minus feed cost. The milk profitability ratio should be eliminated from the dairy vocabulary,” one reader of Dairy Herd Network wrote a month ago after the January ratio was reported.

A couple of other observations, pro and con:

  • In 2011, a banner year for many dairies, the milk-feed ratio peaked at 2.14 in March. For most months, the ratio was below 2.0. Yet, conventional wisdom has been that the milk-feed ratio needs to be 3.0 or higher before it is profitable to buy feed and produce milk.
  • The milk-feed ratio appears to underestimate the price of alfalfa hay. In Wednesday’s report, the USDA quoted a price of $198 per ton, which is well below the $250-plus prices reported in most parts of the country for premium-quality alfalfa hay.
  • Although the milk-feed measure is a rough calculation, the USDA does use the same formula each month, comparing the same commodities. To that extent, it may serve as a relative measure when looking at numbers over the course of several months.

In calculating February’s ratio, USDA used an all-milk price of $17.90 per hundredweight, down from $19 in January. It used a corn price of $6.16 per bushel, a soybean price of $12.30 per bushel and, again, an alfalfa hay price of $198 per ton.

The ratio was part of the USDA’s “Agricultural Prices” report.



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Chad    
PA  |  March, 01, 2012 at 08:36 AM

I think the milk-feed ratio still has a place. IOFC is a better tool in the short term, but not as useful in comparing long term trends because other costs are rising. A $9 IOFC might look fantastic today, but not leave enough $ to pay labor, fuel and other expenses a decade from now.

Donald Hibbard    
Woodstock, CT 06281  |  March, 01, 2012 at 10:06 AM

No matter how you evaluate the profitability of producing milk, there are not many things we can control. The one place we do have some control is in what cows we decide to keep in the herd. The beef market has been good and with the high feed cost and limited quantities of some feeds, it makes sense to cull a couple percent more animals from the dairy herd. If we all did this we would be some more profitable. Combine this with the fact many farms are overcrowded, production per cow should make up for the dear departed.

Richard Nelson    
Northern VT  |  March, 01, 2012 at 10:57 AM

Donald di you think 12 to 1500 is alot for a cull cow. LOL Yes it is now time to cull some of those break even cows.

Tom Beaudry    
NH  |  March, 01, 2012 at 11:48 AM

The milk:feed ratio still may have some use but references to 3.0 or above as being the only time to profitably increase production etc. are no longer relevant. The ratio has been at 2.0 or below since since 2007 yet production has grown 1.5% or greater every year. Time to take the emphasis off the ratio.

walter schuette    
Unity, WI  |  March, 02, 2012 at 12:07 AM

You farmers are all correct in your thoughts. Yes , we ALL need to cull and take the the higher beef prices. 2011 was a major export year and by in large good a crop year. Hay of any type will get short soon and culling will take place. The 400 SSC culls will be slow to develope and the bankers will keep preasure on farmers to keep the animal numbers up for asset purposes. Like the USDA the bankers don't have a clue what it takes to produce milk. Why is there NO grouth in fluid consumption? I quit drinking soda and feel better. My kids are both very smart and drink lots of milk. We all have a job to do in educating the public on the benifits of dairy products, in essence for them , not for us. Thank you and good luck this year. It will be more like 2010 I feel but hopefully not like 2009. The government needs to realize that when we are making some money we spend it and that helps the economy. OK,Enough.

Mark    
March, 04, 2012 at 04:10 PM

Dairy Farmes need a better price system. Risk managment only takes it so far and only gives what the board offers. In additions it costs .50cent to a buck a hdw. Not cheap add it to the cost of producion. We need to think differently as and industrie about what we produce. More importantly how we are going to market it before we produce it. Every other industrie doesn't produce ad then deciede how they're going to market it.

Loren Lopes    
Turlock Ca.  |  September, 28, 2012 at 08:45 AM

If we use ERS-USDA, monthly dairy cost of production per cwt of milk sold 2012, this will give a much better pricture of what is happening. Together with the all milk price minus total operating costs will give a number left for allocated overhead. The Milk to feed ratio in the past indicated it was not profitable to produce milk below a 3 to 1 ratio maybe thats all it is designed to tell us. You can use this ERS-USDA average cost of production numbers and than fine tune it to your own dairy operation milk price and other income minus Feed Cost, Operating Cost, and find what is plus or minus. This is a much better indicator than the Milk to Feed ratio.


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