What is your margin of milk price minus feed cost? While this is an extremely important number, most dairy producers only have a vague idea of what their margin is. Granted, it is not something that we calculate every day and it keeps changing with every monthly milk pricing. But knowing your margin of income over feed cost is a major component to the dairy provision in the new farm bill. How much margin should you insure? How do I determine how much margin protection I should sign up for, if I should at all?
Let's compute an example: For this example, we will use a 100-cow milking herd that raises its heifers. For a 100-cow herd, we have 80 cows milking that currently cost us $7 per head per day to feed. We also have 20 dry cows that cost us $2 per head per day to feed and there are 100 calves and heifers ranging in age from less than one month to 24 months of age. Feed costs for heifers vary with age but we will use $2 per head per day to feed on the average for all the young stock. This gives us a total cost per day for feed for all of our animals of $800 per day. If the cows are milking an average of 80 pounds per day, they are producing 6400 pounds of milk per day or 64 cwt. This gives a feed cost of $12.50 per cwt of milk produced. If your margin is milk price minus feed cost, what does that leave you for a margin to pay your other expenses? Most producers are somewhat surprised at how high the feed cost is when dry cows and heifers are included. Even if you think you can feed your milking cows for less, maybe even at $1 per head per day, your feed cost will still be $11.25 per cwt of milk.
As we look at the margin protection plan in the farm bill, we see where this comes into the future of our price support system. The old milk pricing support plan has changed. No longer will there be a minimum price level, no MILC plan, no export enhancement. You will need to make several decisions:
- Do I want to participate in this program? Y/N
- If yes, at what level of margin do I feel comfortable with? ($4.00 to $8.00)
- What percent of my production do I want to protect? (25% to 90%)
Take a look at the folliowing table:
Table 1. Premiums are a cost per cwt. Source: National Milk Producers Federation.
|Margin protection program premiums|
|Margin level covered||First 4 million pounds 2014-2015||First 4 million pounds after 2015||More than 4 million pounds|