Profitability ratio continues to rebound from a deep hole

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November’s milk-feed ratio is still indicative of a bad situation in the dairy industry, but a marked improvement from the ratios posted this summer.

On Friday, the U.S. Department of Agriculture reported the preliminary ratio for November stood at 1.79.

Traditionally, it was believed that the ratio needs to be 3.0 or above before it’s profitable to dairy. But the dynamics of the industry appear to have changed enough that ratios in the 2.0-to-2.2 range are now considered “the good old days.”

In 2011, generally considered to be a good year for dairy farmers, the highest the ratio got was 2.14 in March that year.

Last July, the ratio hit a record low at 1.34.

November’s number reflects continued improvement in the milk price and perhaps a slight moderation in feed prices. The all-milk price used in November’s calculation was $22.10 per hundredweight, up 60 cents from October. The corn price was $6.71 per bushel, down 6 cents from October. The soybean price, meanwhile, was $13.80 per bushel compared to October’s $14.20. The price of alfalfa hay was up $3 per ton -- from $212 in October to $215 in November. 

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.



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