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 Production is Stagnant but Prices are Rising

In the last issue, the Class III futures for May and June were at $15.76 and $16.44/cwt, respectively. The Class III component price for May closed about $0.60/cwt higher at $16.38 and then became slightly lower in June at $16.27/cwt. The Class III future for July is similar to June’s component price at $16.13/cwt followed by a jump to $17.37/cwt in August. Overall, milk prices are getting better and continue to be on the rise.

An explanation for the continued rise in milk prices seems to be from increased demand and not supply. According to the USDA, monthly milk production in 2019 and in the major 24 milk producing states has been nearly identical to their respective months in 2018. However, product sales and dairy exports are both experiencing growth and making the overall price increase. Some economists are even suggesting the increase in demand could push Class III milk prices over $18/cwt before the end of 2019.

Although total milk production is stagnant, production per cow continues to be increasing but at the same rate that US cow numbers are decreasing. According to the USDA, 2019 milk production per head was up about 0.8% compared to 2018. Conversely, cow numbers in the major 24 states were down around 60,000 head compared to one year ago (July 2018: 8.84 million head). Given the long lag time it takes for cow numbers to respond to milk prices, I would expect cow numbers to continue decreasing for at least another 6 months. Nutrient prices are also on the rise (see below), which should start causing US cow numbers to drop even faster than the current rate. Considering these aspects together, we can probably expect total milk production to decrease in the near future, and the resulting drop in supply should also help the Class III price surpass $18/cwt.            

A Bad Spring Equals Worse Nutrient Prices

The weather conditions that farmers experienced during spring of 2019 have been nothing short of a disaster, and later planting dates and poor forage crop harvests are already taking a toll on commodity prices. For alfalfa, prices have increased 5% since I wrote this column in May. For soybeans, prices have increased over 7%. For corn and cottonseed, the price hikes are even worse at 17% and 26%, respectively. As expected, the cost to feed cows the nutrients required to produce milk is also getting worse.    

As in previous issues, feed ingredients commonly used in OH were analyzed using the software program SESAME™ developed by Dr. St-Pierre at The Ohio State University. The resulting analysis can then be used to appraise important nutrients in dairy rations, estimate break-even prices of ingredients, and identify feedstuffs that are significantly underpriced as of July 29, 2019. Price estimates of net energy lactation (NEL, $/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.  

Based on July’s appraisal, the cost to feed protein continues to drop as the cost to feed energy continues to increase. For MP, its current value is down nearly $0.04/lb since May ($0.27/lb), whereas the cost of NEL has gone up 2¢/Mcal (May: 9.2¢/Mcal). The price of e-NDF has also increased $0.04/lb, whereas ne-NDF has decreased about $0.05/lb since May. Overall, the total cost of feeding lactating dairy cows is up about 10% since May.

To estimate profitability at these nutrient prices, the Cow-Jones Index was used for average US cows weighing 1500 lb and producing milk with 3.7% fat and 3.1% protein. For July’s issue, the income over nutrient cost (IONC) for cows milking 70 lb/day and 85 lb/day cows is about $9.17/cwt and $9.67/cwt, respectively. Although this is about $0.80/cwt less than estimates from May ($9.97/cwt and $10.38/cwt, respectively), July’s IONC are still profitable for Ohio dairy farmers but barely. However, these estimates of IONC do not account for the cost of replacements or dry cows, which would likely make profit margins even slimmer.

Table 1. Prices of dairy nutrients for Ohio dairy farms, July 29, 2019.

Economic Value of Feeds

Results of the Sesame analysis for central Ohio on July 29, 2019 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, July 29, 2019.

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 in Ohio, July 29, 2019.

Bargains At Breakeven Overpriced
Bakery byproducts Alfalfa hay - 40% NDF Beet pulp
Corn, ground, dry Gluten meal Blood meal
Corn silage Soybean hulls Mechanically extracted canola meal
Distillers dried grains 48% Soybean meal Citrus pulp
Feather meal Soybean meal - expeller 41% Cottonseed meal
Gluten feed Whole, roasted soybeans Fish meal
Hominy Whole cottonseed Molasses
Meat meal Wheat bran Solvent extracted canola meal
Wheat middlings   44% Soybean meal

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 NEL and MP contents.


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.

Table 4. Prices of dairy nutrients using the 5-nutrient solution for Ohio dairy farms, July 29, 2019.