Penn State University’s measure of income over feed costs (IOFC) rose in July and remains well above last year, according to the latest Dairy Outlook report from economist Jim Dunn. Declining feed prices combined with steady milk prices, pushing the July IOFC to $11.36/cow/day, up 39¢ (3.5%) from June, and $3.91/cow/day more than July 2013.
IOFC reflects daily gross milk income less feed costs for an average cow producing 65 lbs. of milk per day. The average cost to feed a cow producing 65 lbs. of milk per day was $4.95/day, down 39¢ (4.0%) from June, and the lowest since January 2014. The July 2014 Pennsylvania all-milk price of $25.10/cwt., unchanged from June.
Measured another way, feed costs per hundredweight of milk produced averaged $7.62/cwt. in July, down 60¢ from June. With the steady milk price, the milk margin over feed costs was $17.48/cwt., up 60¢/cwt. (also 3.5%) from June 2014, and up $6.01/cwt. from July 2013.
Dunn’s forecast of the average 2014 Pennsylvania all-milk price is $25.06/cwt., which would be up $3.57 (16.6%) from 2013’s estimated price of $21.48/cwt.
Looking at factors affecting costs and income, corn prices have fallen 13.9% since Dunn’s July outlook report, ending at $3.59/bu. for the September 2014 contract. Growing conditions in the Midwest were very favorable in July, with the average July temperature in July tying the low attained in 2009. Conditions are a little dry now, but, given the wet June, not yet serious. Soybean prices are down 11.2% from last month, reflecting the expectation of an excellent crop on more acreage than last year. Soybean meal is down 13.2% from last month. In total, the purchased feed prices should be more affordable for dairy producers, although the drought in the West continues to worsen.
The latest milk production report showed June milk production up 1.95% from the year earlier, the largest monthly increase this year over the same month of 2013. This is somewhat bearish, although given the margins so far in 2014, it is not excessive, Dunn said.
The U.S. dollar is up against the Euro and the Australian and New Zealand dollars since July’s report – especially against the New Zealand dollar, the major dairy exporting country. The recent reports of higher growth in U.S. Gross Domestic Product and other aspects of the economy have strengthened the dollar.
To read Dunn’s complete Dairy Outlook report, click here.