Cost-price squeeze getting tighter

Hoard's Dairyman: 

Cost-price squeeze getting tighter

Thu, 12/02/2010

This Tuesday, USDA released its monthly Milk-Feed Price Ratio, which was 2.22 for November, down notably from October's 2.4o. The ratio was 2.26 last November. (The Milk-Feed Price Ratio reflects the pounds of a 16 percent-mixed dairy ration equal to the value of 1 pound of milk.) The drop in the ratio for November came as a result of a lower milk price and higher feed costs.

The All-Milk Price used for November was $17.90, which was down 60 cents from October. Feed costs used in the calculations were corn at $4.59 a bushel (up 27 cents from October), soybeans at $11.20 (up $1), and alfalfa at $117 a ton, down a tad from $118. The corn price at $4.59 was highest since September 2008, according to the CME Group's Daily Dairy Report. Authors of that report also calculate an "implied income over feed cost" using the milk price and feed costs. That value was $9.84 for November, down 95 cents from October.

The graph shows Milk-Feed Price Ratios for the past three years. At last month's 2.22, we still were higher than any month during 2009, except November. Unfortunately, it looks as if we can expect milk prices to continue to move lower in the months ahead, while feed prices stay strong or even move higher.