Profitability ratio hits record low

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The milk-feed ratio ― a rough measure of dairy producer profitability ― has never been this low.

Thursday afternoon, the U.S. Department of Agriculture reported that the preliminary milk-feed ratio for May was 1.38. That broke the previous record of 1.45. (It should be noted that the 1.45 figure reported for April 2012, which tied June 2009, was now been revised down to 1.42.)

None of the milk-feed ratios on record, going back to 1985, have ever been this low.

May’s number reflects high feed costs and a declining milk price.

The all-milk price used by the USDA in calculating the ratio dropped from $16.80 per hundredweight in April to $16.40 in May.

May’s corn price was down slightly from April ― $6.22 per bushel versus $6.34 ― but the soybean price remained at the same high level ― $13.70 per bushel ― and alfalfa hay increased $8 per ton to $215.

Some people question how valid the USDA’s milk-feed ratio is. See this story. But the USDA has been using the same formula for years, comparing the same commodities. Therefore, it can serve as a relative measure for comparing different points in time.

The ratio is found in the USDA’s monthly “Agricultural Prices” report.

There is some hope, however. Since May 15, the block cheese price on the Chicago Mercantile Exchange has risen 12 cents per pound -- from $1.50 to $1.62. Often, that portends an increase in the milk price. A one-cent change in cheese will move the Class III milk price by 10 cents, according to a common rule-of-thumb.

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WI  |  June, 01, 2012 at 10:30 AM

How reliable are any government reports? Next month they will revise them or adjust them to there liking.

new york  |  June, 01, 2012 at 02:24 PM

All the goverment wants is money and they will do anything and put bad reports on the market so they make more money. The first to get it is the farmers. I am a dairy farmer that makes alot of milk and grows my own corn and i still have trouble paying my bills. I milk 120 cows and average 84 pound herd average. How much more do we have to push are cows to pay our bills.

Ed & Emma    
MA  |  June, 02, 2012 at 06:11 AM

Jon, you are doing a great job, we only wish we could do as well. SOS, not enough to pay the bills...Don't blame the govamint....just look around at all the big shiny new farms that milk a lot of cows...they are becoming more prevalent, and like yourself they do everything right with teams of top management. Just look of the winners of the Pop award....they all espouse large scale milk production, whether needed or not...Dave Galton, most recently recognized, teaches his students to farm big, and over the years he has continued to raise the cow number bar. Milk Source continues to add cows and build new facilities with reckless abandon....more cows, more money...Capitalism at its worst!! New York's George Mueller wrote an article in Progressive Dairyman, calling for increased production to supply the export market...You can see what has transpired. Our industry does it to itself, yet some call on the govamint to create an insurance program to protect us from those who make milk irresponsibly, while the rest of us struggle to stay afloat in their tsunami of milk...Great program!!! Those in govamint don't get it...The governor of Wisconsin has called on Wisconsin dairy to increase production 15%...What will that do for our prices...And at least one New York rep has called for increased production there. Guess they never took an Economics class.


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