According to the “Agricultural Prices” report released by the USDA on Monday, the preliminary milk-feed profitability ratio for December is 2.30 ― the highest in more than three years.

October 2010 was the last time it was higher (at 2.40).

The all-milk price used in calculating December’s ratio was $21.80 per hundredweight.

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

In the latest calculation, the corn price dropped to $4.31 per bushel in December from $4.35 per bushel in November. Soybeans rose from $12.70 per bushel in November to $13 in December, while alfalfa hay dropped slightly from $188 per ton in November to $187 in December.

Read the report here (see page 40).

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 2.30 ratio in December, a dairy producer could buy 2.30 pounds of feed for every 1 pound of milk sold.

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.