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

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

Milk Prices: Have we hit rock bottom?

Starting off 2018, milk prices have been nothing short of disappointing. As I write, the Class III component price for January closed at $14.00/cwt and then took another drop in February to $13.44/cwt. The March Class III futures price is slightly lower at $13.36/cwt, but is projected to jump up to $14.10/cwt in April.

Fortunately, this jump back above $14/cwt may be the start of a steady rise in prices. Current demand for milk solids have been on the rise in Asian countries, namely China. Colder temperatures world-wide have also contributed to the projected bump in price as world-wide milk production has been relatively stagnant. Looking at Chicago Mercantile Exchange (CME) futures, they are currently trading at $14.50/cwt but are projected to push the $16/cwt mark come late summer or fall. The increase in price would be faster; however, cold stores of cheese and butter are 4 to 5% greater than one year ago and are backing the recent surge in demand.

Nutrient Prices: Oilseeds are overpriced

Although exports of milk solids have been increasing at a fast pace, exports of oilseeds have also been on the rise. Since the last issue, soybean and canola meals have both increased nearly 15 and 12%, respectively. This is a large jump that may or may not be temporary. In South America, harvest is just over half way from completion, which would suggest the price should begin to come back down. However, parts of South America have also suffered adverse weather throughout the growing season, and the harvest may not be as bountiful as expected. The futures price for soybeans and canola is also fairly stable for the next couple of months. In short, the bump in price may be here to stay, but this will largely depend on weather conditions for the upcoming U.S. growing season.

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 underpriced as of March 26, 2018. 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 value ($0.50/lb) is higher than January’s issue ($0.43/lb). The cost of NE_L is nearly identical to January (7.7¢/Mcal) and is lower than the 5-year average of 11¢/Mcal. The price of e-NDF decreased from 7¢ to 3¢/lb, whereas ne-NDF is relatively unchanged from January at -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 prices, I used the Cow-Jones Index for cows milking 70 lb/day or 85 lb/day at 3.7% fat and 3.1% protein. In the January issue, the average income over nutrient costs (IONC) was estimated to be $9.23/cwt for cows milking 70 lb/day and $9.62/cwt for cows milking 85 lb/day. For March, the IONC for our 70 lb/day and 85 lb/day cows are about $2/cwt lower than November at $7.26/cwt and $7.61/cwt, respectively. These IONC may be overestimated because they do not account for the cost of replacements or dry cows.

In summary, these IONC prices are not very good, and dairy producers will need to cut cost whereever possible for the next couple of months to find a profit margin (if there is one).

Table 1. Prices of dairy nutrients for Ohio dairy farms, March 26, 2018.

Economic Value of Feeds

Results of the Sesame analysis for central Ohio on March 26, 2018 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, March 26, 2018.

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, Ohio, March 26, 2018.

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 NE_L and MP content.

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, March 26, 2018.