July’s shocking milk-feed ratio

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No one ― even in the darkest days of 2009 ― ever imagined the milk-feed ratio going this low.

On Tuesday, the U.S. Department of Agriculture announced a preliminary milk-feed ratio of 1.29 for July. That was down significantly from June’s ratio of 1.38.

None of the milk-feed ratios on record, going back to 1985, have been this low. The lowest ratio recorded in 2009 was 1.45.

July’s number reflects escalating corn and soybean prices.

The corn price jumped almost $1 from June ― $6.37 per bushel to $7.36. The soybean price jumped even more from $13.90 per bushel in June to $15.60.

Alfalfa hay dropped $3 per ton to $198.

The all-milk price used by the USDA in calculating the ratio increased from $16.20 per hundredweight in June to $16.60 in July.

The milk-feed ratio is a rough measure of dairy profitability.

The milk-feed ratio represents the pounds of 16-percent mixed dairy feed equal in value to 1 pound of whole milk. Therefore, with a 1.29 ratio in July, a dairy producer could buy 1.29 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.

The ratio is found in USDA’s monthly “Agricultural Prices” report.



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gw    
August, 01, 2012 at 10:02 AM

And yet we continue to burn corn to power our SUV's. Eliminate the ethanol mandate and let the market decide the best use for grains. This current plan is insane.

Ed g    
new york  |  August, 01, 2012 at 10:25 AM

shocking to who. maybe you need to get out of the office more.

Ian    
VA  |  August, 01, 2012 at 10:51 AM

Because we all know that if it were not for ethanol the dairy sector would be doing just great. It is unacceptable that crop farmers should make a profit. $2.00 corn is a human right akin to health care and the rest. If it were not for the ethanol mandate dairy production could continue to rise unabated ad infinitum with no consequence in the price received for milk. Yes...ethanol is the problem. Not drought. Not exports. Not the livestock sector. Not "evil" high fructose corn syrup. Only dairy has a moral claim to corn. The ethanol mandate is why soybean meal futures are at $550. And I do dairy.... don't like paying high dollars for feed either. Not a big fan of the RFS2 mandate. But instead of being upset that the government is picking the wrong winners and losers with their mandates and regulations and all the rest, be incensed that they are even in the business of picking winners and losers at all. In the meantime I need to adapt my practices to the reality of the markets.

andy    
Texas  |  August, 01, 2012 at 03:26 PM

Let the free market decide if ethanol works. End the mandate!

Mike Pawlak    
Middleton, WI  |  August, 01, 2012 at 05:41 PM

Tom, I've been looking at Milk:Feed ratios for years primarily as an indicator for when dairy producers make capital equipment purchases. For years 2.00 used to be the tipping point: Above 2.00 - good equipment sales, below 2.00 - Bad. 2008 redefined that metric. Obviously the ethanol market has played a major part in this metric change. Dairies that grow their own generally prosper, as long as milk prices are reasonable, but the M:F ratio is telling a completely different story today, and what it shows definitely needs more interpretation!

Jim    
Mn  |  August, 01, 2012 at 08:40 PM

If we had cheap feed in my area there would be many more 5000 cow barns.What would that do to milk supply .Expensive feed is the only thing keeping a lid on expansion !

Ed & Emma    
MA  |  August, 03, 2012 at 09:14 PM

Mike, we guess you mean 3.0, but it has been so long since we have seen that ratio, some seem to have forgotten that suggested rule. However, since large herd expansion has become the trend, maybe 2.O works for those who operate with the cost efficiencies that come with economy of scale. According to USDA numbers, cost of production for 50-100 cows is $34 and change, whereas cost of production for 1000 cows is $18 and change....


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