Milk Prices, Costs of Nutrients, Margins and Comparison of Feedstuffs Prices

Mr. Alex Tebbe, Graduate Research Associate, Department of Animal Sciences, The Ohio State University

The Ugly Side: Milk Prices

In the last issue, the March Class III price closed at $13.78/cwt and the April future price was expected to be slightly lower at $13.74/cwt. The Class III price for April closed only slightly lower than expected at $13.63/cwt, giving producers a mailbox price at or around $15.40/cwt. At these Class III prices, the month of April prices were down over $2.25/cwt and almost $8/cwt since 2015 and 2014, respectively. May futures are projected to rise slightly to $13.69/cwt, and then as the kids get out of school, another big drop in milk futures price to $13.14/cwt are expected for the month of June. Overall though, the volatility of the 2016 milk market has been tame, but regardless of stability, prices are still not good.

It may seem that with every issue of the Buckeye Dairy News I write, the price continues to plummet and no resilience in the milk market is in sight. But before you all chase me off the stage, we have to acknowledge the productivity of our cows as total milk production is up 1.2% from April 2015, and according to the NASS, milk production per cow continues to improve and is currently the highest we’ve ever seen. Simply put, efficiency is the key to success and focusing on getting that “last pound of milk” is crucial in times like this when the break even price is at or below the net revenue.   

The Good Side: Nutrient Prices

Once again, low feed prices are the primary reason many of our Midwest producers are able to stay afloat. We can only hope nutrient prices continue to stay low as we hit the planting season with full force.      

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 all commodities traded in Ohio, and to identify feedstuffs that currently are significantly underpriced as of May 24, 2016. Price estimates of net energy lactation (NE_L, $/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.  For MP, its current price ($0.404/lb) has increased from March’s issue ($0.312/lb). The increase in MP is probably stimulated by South America’s bad year in soybean production, leading to a nearly $90/ton spike in both 44 and 48% soybean meals. There was also a slight bump of NE_L price from last month ($0.095/lb) to $0.1043/lb this month.  The jump results in an identical price as its historical 6-year average of about 10¢/Mcal NE_L.   The cost of ne-NDF has went down from last month from -6¢/lb to -13¢/lb and is still discounted by the markets (i.e., feeds with a significant content of non-effective NDF are priced at a discount). Meanwhile, unit cost of e-NDF is just over twice its 6-year average (3.3¢/lb), being priced at 7.1¢/lb. Fortunately, a dairy cow requires only 10 to 11 lb of effective NDF, so the daily cost of providing this nutrient is only about $0.75/cow/day (i.e., 10.5 lb × $0.071 per lb).

To estimate the cost of production at these nutrient levels, I used the Cow-Jones Index with a target cow milking 70 lb/day at 3.7% fat and 3.1% protein eating 50 lb/day. In this model, the average income over nutrient costs (IONC) should be around $4.63/cow/day or $6.61/cwt.  The same cow producing 85 lb/day will increase average IONC to $5.98/cow/day and the income per cwt to $7.04/cwt. In the last issue, the income was on average $1.25/cwt more at $8.29/cwt and $7.95/cwt for the 70 and 85 lb/day cow, respectively. I must note, however, these costs neither include the costs of feeding the dry cows nor the replacement herd. Overall, the dairy industry is not very profitable as of now.  

Table 1. Prices of dairy nutrients for Ohio dairy farms,
May 24, 2016.

Economic Value of Feeds

Results of the Sesame analysis for central Ohio on May 24, 2016 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. One must remember that Sesame compares all commodities at one point in time, mid May in this case. 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, May 24, 2016.

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.

Table 3. Partitioning of feedstuffs, Ohio, May 24, 2016.

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 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 NE_L 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 the table below.

Table 4. Prices of dairy nutrients using the 5-nutrient solution for
Ohio dairy farms, May 24, 2016.