Everybody’s mailbox milk price, the amount of dollars that actually get deposited into your checkbook each month, is a little different.
Your butterfat, protein and hauling charges are all likely different from your neighbor’s. You also may be receiving some volume and/or quality premiums. Using generalized milk price forecasts can be useful, but using forecasts tailor made to your operation could be a powerful budgeting tool. That’s especially true this year as milk prices fall and cash flows bleed red.
Now you have such a tool. Brian Gould and colleagues at the University of Wisconsin have now come up with a spreadsheet tool where individual dairy farmers can have a customized mailbox milk price predictor for their own farm. To get it, you’ll need to download an Excel spreadsheet, plug in some of your own monthly mailbox prices (and component values if you want more accurate estimates) and run the program while your computer is linked to the internet.
Most importantly, you’ll need to have your past mailbox prices so that the program can calculate your own operation’s historic mailbox price basis compared to Class III and Class IV monthly announced prices. “The more data you have available the better,” says Gould. If you can provide at least the last 12 to 15 months of your mailbox prices, that will give the program a good starting point.
If you don’t want to input monthly herd average butterfat and/or protein percentages levels, the software assumes you have standard component composition. But Jersey herds, for example, will want to input their components or the program will underestimate your likely mailbox price, explains Gould.
The program is an especially good fit for Midwest farmers because milk prices here are highly correlated with Class III prices. Nevertheless, the program works reasonably well in other regions as well because Class I and Class II prices are tightly correlated to Class III and IV in the Federal Order formulas.
The program even works in California, which has its own pricing formulas. Once again, however, the California 4b cheese price pretty much moves in concert with Class III, because both are based on Chicago Mercantile Exchange prices. Below are some predictions where state/regional mailbox price averages where used to predicted future mailbox prices.
So how good a predictor is this tool? “We looked at actual and predicted average state and regional mailbox prices going back to 2001, and because of the importance of Class III and IV prices in determining mailbox prices, there was very little difference in the two data series,” says Gould.
From all indications, 2016 will be a challenging year. But knowing how much of a challenge it will be based on your own farm’s data will help you plan and budget cash flow needs.
To get a copy of the Mailbox Milk Price Predictor software, e-mail Brian Gould at bwgould@wisc.edu
