Low Milk Prices: How Long Will This Last?

Note: This story is part of Ohio State University's Buckeye Dairy News Milk Prices, Costs of Nutrients, Margins, and Comparison of Feedstuffs Prices series. 

In the last issue, the Class III component prices for November and December were at $15.52 and $14.50/cwt., respectively. The Class III component prices for the month of November and December actually closed much lower at $14.44 and $13.78/cwt. Class III futures for January and February are about the same as December component prices at $13.80 and $14.00/cwt. Overall, current milk prices are not good, and producers will have to continue pinching pennies if they want to make any money.

Historically, it is not abnormal for milk prices to temporarily go down during the beginning of the year. However, producers can partially counteract low milk prices because the beginning of the year is also when cows should be producing the largest volumes of milk and milk components. These trends then suggest that milk prices will start to increase in March and April as milk production plateaus. But, how much will they increase?

According to some economists and the USDA, the 2019 milk price is predicted to be around $1/cwt more than 2018 (OH Class III average of $14.60/cwt). This is primarily because steady, above average beef prices are encouraging US cow numbers, and therefore, total milk supply to both decrease. The USDA forecast also predicts domestic demand to be fairly stable in the future. Looking at the Chicago Mercantile Exchange futures, they are currently trading around $15.40/cwt, which also suggests that the $1/cwt greater forecast for 2019 could be accurate. If I were to guess, I expect the Class III milk price to stay under $15/cwt until May or June and then go over $16/cwt by the end of summer.

Nutrient Prices Continue to be Low  

As in previous issues, these feed ingredients were appraised using the software program SESAME™ developed by Dr. St-Pierre at The Ohio State University to price the important nutrients in dairy rations, to estimate break-even prices of many commodities traded in Ohio, and to identify feedstuffs that currently are significantly underpriced as of January 27, 2019. Price estimates of net energy lactation (NEL, $/Mcal), metabolizable protein (MP, $/lb; MP is the sum of the digestible microbial protein and digestible rumen-undegradable protein of a feed), non-effective NDF (ne-NDF, $/lb), and effective NDF (e-NDF, $/lb) are reported in Table 1.  

When looking at commodity and nutrient prices on a historical basis, they are low. For MP, its current value has increased $0.05/lb from November’s issue ($0.39/lb) but is slowly approaching the 5 year average ($0.48/lb). The cost of NEis 1¢/Mcal lower than November (6.7¢/Mcal) and about half as expensive as the 5-year average (11¢/Mcal). The price of e-NDF and ne-NDF are not very different from last month at 7.6¢/lb and -1¢/lb (i.e., feeds with a significant content of non-effective NDF are priced at a discount), respectively, which are also close to their 5-year averages (7¢/lb and -2¢/lb).

To estimate the cost of production at these nutrient prices, the Cow-Jones Index was used for average US cows weighing 1500 lb and producing milk with 3.7% fat and 3.1% protein. For this issue, the income over nutrient costs (IONC) for cows milking 70 lb/day and 85 lb/day is about $8.07/cwt and $8.45/cwt, respectively. If we use current fat and protein averages for Ohio dairy farms (4.0% fat and 3.25% protein), the IONC are better at $8.74/cwt and $9.11/cwt. Regardless, these IONC are worse than November ($9.78/cwt and $10.17/cwt, respectively). These IONC may also be overestimated because they do not account for the cost of replacements or dry cows; however, they should be profitable when greater than about $9/cwt. This suggests profits for dairy farmers in Ohio are currently at or below breaking even.

Table 1. Prices of dairy nutrients for Ohio dairy farms, January 27, 2019.

 

Economic Value of Feeds

Results of the Sesame analysis for central Ohio on January 27, 2019 are presented in Table 2. Detailed results for all 27 feed commodities are reported. The lower and upper limits mark the 75% confidence range for the predicted (break-even) prices. Feeds in the “Appraisal Set” were those for which we didn’t have a price or were adjusted to reflect their true (“Corrected”) value in a lactating diet. One must remember that SESAME™ compares all commodities at one specific point in time. Thus, the results do not imply that the bargain feeds are cheap on a historical basis.

Table 2. Actual, breakeven (predicted) and 75% confidence limits of 27 feed commodities used on Ohio dairy farms, January 27, 2019.

 





For convenience, Table 3 summarizes the economic classification of feeds according to their outcome in the SESAME™ analysis. Feedstuffs that have gone up in price or in other words moved a column to the right since the last issue are red. Conversely, feedstuffs that have moved to the left (i.e., decreased in price) are green. These shifts (i.e., feeds moving columns to the left or right) in price are only temporary changes relative to other feedstuffs within the last two months and do not reflect historical prices.

Table 3. Partitioning of feedstuffs in Ohio, January 27, 2019.

Bargains At Breakeven Overpriced
Corn, ground, dry Bakery Byproducts Alfalfa hay - 40% NDF
Corn silage Beet pulp Mechanically extracted canola meal
Distillers dried grains Blood meal Citrus pulp
Gluten feed 41% Cottonseed meal Fish meal
Hominy Feather meal Molasses
Meat meal Gluten meal Solvent extracted canola meal
Soybean meal - expeller Soybean hulls 44% Soybean meal
Wheat middlings 48% Soybean meal Tallow
  Whole cottonseed Whole, roasted soybeans
  Wheat bran  

 

 

 

 

 

 

 

 

As coined by Dr. St-Pierre, I must remind the readers that these results do not mean that you can formulate a balanced diet using only feeds in the “bargains” column. Feeds in the “bargains” column offer a savings opportunity, and their usage should be maximized within the limits of a properly balanced diet. In addition, prices within a commodity type can vary considerably because of quality differences as well as non-nutritional value added by some suppliers in the form of nutritional services, blending, terms of credit, etc. Also, there are reasons that a feed might be a very good fit in your feeding program while not appearing in the “bargains” column. For example, your nutritionist might be using some molasses in your rations for reasons other than its NEL and MP contents.

Appendix

For those of you who use the 5-nutrient group values (i.e., replace metabolizable protein by rumen degradable protein and digestible rumen undegradable protein), see Table 4.

Table 4. Prices of dairy nutrients using the 5-nutrient solution for Ohio dairy farms, January 27, 2019.

 

 
Comments