Dairy profitability ratio soars to 6-year high

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Market increase According to the “Agricultural Prices” report released by the USDA on Friday, the preliminary milk-feed ratio for January is 2.44 – the highest in six years.

January 2008 was the last time it was higher (at 2.65).

High milk prices and lower feed costs are propelling the profitability ratio upward, a more favorable direction for dairy farmers. 

The all-milk price used in calculating January’s ratio was $23.20 per hundredweight. This is up from $22 per hundredweight reported in the December report.

In the latest calculation, the corn price dropped to $4.37 per bushel from $4.41 per bushel in December. Soybeans were left unchanged at $13 per bushel, and alfalfa hay dipped from $187 per ton in December to $185 per ton in January.

Read the report here (see page 67).

The milk-feed ratio is a rough measure of dairy profitability. It represents the pounds of 16-percent mixed dairy feed equal in value to 1 pound of whole milk. Therefore, with a 2.44 ratio in January, a dairy producer could buy 2.44 pounds of feed for every 1 pound of milk sold.

Some people question the validity of the milk-feed ratio. 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 “Agricultural Prices” report also showed prices for replacement milk prices slightly higher than 2013 at $1,440 per head. This is $30 per head higher than reported in October 2013 and $70 per head higher than in January 2013.  

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