Profitability ratio: ‘How low can you go’?

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As bad as 2009 was for dairy producers, the milk-feed ratio never was this low.

On Thursday, the U.S. Department of Agriculture announced that June's milk-feed ratio ― a rough measure of dairy producer profitability ― is 1.38.

That ties the record low established last month. However, that was a preliminary figure, and the USDA has since revised the May milk-feed ratio down even further to 1.35.

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

June’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 $16.20 per hundredweight in May to $16.10 in June.

June’s corn price was down slightly from May ― $6.25 per bushel versus $6.33 ― but still high on an historical basis. The soybean price dropped slightly, as well, from $14 per bushel in May to $13.70 in June. Alfalfa hay dropped $14 per ton to $201.

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 June 15, the block cheese price on the Chicago Mercantile Exchange has remained fairly strong ― in the $1.61- to $1.65-per-pound range. That could translate into higher Class III milk prices and, hence, a higher all-milk price by next month’s report.

But drought conditions could drive up feed costs.



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