Is Wednesday’s gloomy milk-feed ratio even worth considering?

On Wednesday, the U.S. Department of Agriculture released a particularly gloomy milk-feed profitability ratio.

USDA's report reflects high feed costs and falling milk prices. The preliminary ratio for February, cited as 1.58, is down 0.14 points from January and reminiscent of the dairy recession of 2009.

Bad news aside, some people question whether the milk-feed ratio is even worth considering.

"A better tool to use is milk income minus feed cost. The milk profitability ratio should be eliminated from the dairy vocabulary," one reader of Dairy Herd Network wrote a month ago after the January ratio was reported.

A couple of other observations, pro and con:

  • In 2011, a banner year for many dairies, the milk-feed ratio peaked at 2.14 in March. For most months, the ratio was below 2.0. Yet, conventional wisdom has been that the milk-feed ratio needs to be 3.0 or higher before it is profitable to buy feed and produce milk.
  • The milk-feed ratio appears to underestimate the price of alfalfa hay. In Wednesday's report, the USDA quoted a price of $198 per ton, which is well below the $250-plus prices reported in most parts of the country for premium-quality alfalfa hay.
  • Although the milk-feed measure is a rough calculation, the USDA does use the same formula each month, comparing the same commodities. To that extent, it may serve as a relative measure when looking at numbers over the course of several months.

In calculating February's ratio, USDA used an all-milk price of $17.90 per hundredweight, down from $19 in January. It used a corn price of $6.16 per bushel, a soybean price of $12.30 per bushel and, again, an alfalfa hay price of $198 per ton.

The ratio was part of the USDA's "Agricultural Prices" report.