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

Milk Prices

In the last issue, the October Class III price closed at $14.82/cwt and was projected to remain relatively unchanged in November, followed by a $2/cwt rise to $16.88/cwt for the month of December.  The Class III price for the month of November and December actually closed at $16.76 and $17.40/cwt, respectively. For the month of January, the price is expected to stay stagnant at $17.45/cwt and drop 72¢/cwt in February to $16.73/cwt. Although prices rose at the tail end of 2016, domestic demand in the state of Ohio is currently sluggish and total milk produced has risen. As a result, there is no added bonus from the producer price differential for milk checks in the months of November and December and Ohio farmers should expect their mailbox price to be around $15.40 and $16.80/cwt, respectively; much below the actual prices listed above.

The recent surge in the milk prices can be attributed to increased export prices and the demand for nonfat dry milk in Asia. This is reflected in the nearly 50¢/lb rise of the milk protein prices since October.  However, US milk exports and Oceania and EU domestic prices are rising at similar rates. Total production across the US is also rising. To say the least, there is quite the level of uncertainty where the milk price will head for 2017. In the coming months, I expect prices to stay the same or decrease based on the historical trends of the milk price (Figure 1; USDA) during election years and when new presidents are inaugurated. Given nutrient prices, this is not as bad as it sounds and dairy farming should remain relatively profitable regardless.

Figure 1: Average milk price paid ($/cwt) to farmers in the Federal Milk Marketing Order by month since 2007.

Nutrient Prices

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 January 25, 2017. 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.  

Although milk prices are currently at a standstill, nutrient prices are still low and will more than likely continue to decline. For MP, its current price ($0.38/lb) has stayed the same from November’s issue ($0.37/lb) and is lower than the 5 year average for MP ($0.43/lb). The cost of NE_L decreased 2¢/lb to 9¢/lb, while the price of e-NDF and ne-NDF are nearly identical to last month at 4¢/lb and -8¢/lb (i.e. feeds with a significant content of non-effective NDF are priced at a discount), respectively.

To estimate the cost of production at these nutrient levels, I used the Cow-Jones Index with a cow milking 70 lb/day at 3.7% fat and 3.1% protein eating 50 lb/day of DM. For November’s issue, the average income over nutrient costs (IONC) were estimated at $8.05/cwt and $8.46/cwt. for a cow milking 85lb/day and eating 56 lb of DM. For January, the IONC for our 70 lb/day and 85lb/day cows are estimated to be at $11.57/cwt and $11.94/cwt, which should be highly profitable. Using actual component averages for Ohio (3.9% fat and 3.2% protein) cows averaging 70 lb/day and 85 lb/day should be making even more money at $12.13/cwt and $12.50/cwt, respectively. Bottom line, as long as there is no sudden spike in nutrient prices, a drop in milk prices may not excessively harm the profitability of Ohio dairy farmers.

Table 1. Prices of dairy nutrients for Ohio dairy farms, January 25, 2017.

Economic Value of Feeds

Results of the Sesame analysis for central Ohio on January 25, 2017 are presented in Table 2. Detailed results for all 26 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 January 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 26 feed commodities used on Ohio dairy farms, January 25, 2017. 

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, January 25, 2017.

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 4 below.

Table 4. Prices of dairy nutrients using the 5-nutrient solution for Ohio dairy farms, January 25, 2017.