Income over feed costs (IOFC)
Penn State’s measure of income over feed costs rose by $0.18/cow/day in February to $7.54/cow/day, or 2.5% above its January levels. The PA all‐milk price rose by $0.90/cwt., but feed cost rose by $0.40/cow/day, offsetting the higher milk price somewhat. The feed price value will be lower for March, while the milk price will be much higher, so IOFC will increase in March, to values that may be the highest for 2011. Income over feed cost reflects daily gross income less feed costs for an average cow producing 65 pounds of milk. Figure 1 and Table 2 which show the monthly data, are appended.
The allocation of the revenue per hundred pounds of milk is shown in Table 3. The milk margin is the estimated amount from the Pennsylvania all milk price that remains after feed costs are paid. As with income over feed cost, this measure shows that February was up from January. The price forecasts in Table 1 should more than offset higher feed prices, especially if the Class IV price can stay up.
Often USDA revises the data a month after the original estimate. The data used for income over feed cost were revised considerably for the second half of 2010, meaning the values in Tables 2 and 3 are unusually different from last month’s estimate.
The USDA’s Risk Management Agency’s Dairy Gross Margin program has its monthly window of availability March 25‐26. This allows a dairy producer to protect a version of our milk margin measure from adverse price changes. Given the outlook for milk and feed prices, some form of risk management in 2011 should be seriously considered.
As mentioned earlier, the dairy trade surplus is up. Figure 2 shows the monthly dollar value of exports and imports since 2000. It is apparent that exports have changed significantly in the past four years, while imports have leveled off, or perhaps decreased. Of course, prices have changed over this period and this data is not adjusted for changes in prices. Price changes should change the value of both imports and exports similarly, but this is not seen. The improved dairy trade surplus is the result of several factors, including more favorable exchange rates, weather at home and abroad, and more dairy trade overall. Regardless of the reason, increased dairy exports help U.S. dairy prices and the industry.
Source: Jim Dunn, Professor of Agricultural Economics, Penn State University