Milk Production Costs Headed to All-Time Highs

December 1, 2011 05:35 AM

Soaring feed expenses put 2011 on record-setting track.

Total operating costs for U.S. dairy producers have risen every month since January 2011, reaching $17.06 per cwt. for October, USDA’s Economic Research Service (ERS) reported Nov. 28 in its monthly report on dairy costs of production.
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Not surprisingly, feed costs accounted for the largest operational expense, climbing to $13.41 per cwt., the year’s highest level. Purchased feed, as opposed to homegrown or grazed, accounted for $8.04 per cwt., ERS noted.
The latest production costs put 2011 on track to rival – or even surpass -- 2008’s high-water mark. Total feed costs in 2008 averaged $12.54 per cwt., ERS figures show. That compares to USDA’s feed-cost average for the first 10 months of 2011 of $11.83 per cwt. In 2010, total feed costs for U.S. dairies averaged $11.17 per cwt., according to ERS.
Calculations at Pennsylvania State University indicate the same record-setting trend for feed costs, says Jim Dunn, professor of agricultural economics.
"2011 is the highest for dairy feed costs since we began keeping records in 2000," says Dunn.
While feed expenses rose sharply three years ago, this year’s feed costs are 8.5% higher nationwide than 2008, Dunn says. To calculate monthly feed costs, he uses a fixed ration of hay, soybean meal and corn, priced using publicly available data.
"One big difference this year, compared to previous years, is that corn prices have stayed high since January," he says. "The average corn price for the first 11 months of this year is $6.04 per bu."
2011’s high milk production costs temper a year that’s seen unusually high milk prices. USDA estimates October 2011’s All-Milk Price at $19.90 per cwt., down from $21.10 in September and $22.00 in August. USDA calculated the 2010 All-Milk price at $16.28 per cwt., the 2009 price at $12.82 and the 2008 price at $18.41.
Dunn also calculates a "milk margin," which is the difference between Pennsylvania’s All-Milk price and its average feed cost. 2007 ranked highest in recent years, reaching $14.29 per cwt., which represents the milk price minus feed costs. In 2008, that milk margin fell to $12.01 per cwt.
For 2011, he estimates the milk margin at $13.72 per cwt. for the first 11 months. "But that will shrink by December since milk prices are decreasing," he says.
Weather problems in several key dairy regions this year are likely to increase feed challenges, Dunn adds. The drought in Texas as well as hurricane, tropical storms and flooding in several Northeast states have affected the quality of home-grown feed.
"Farmers will be running out of feed this spring and scrambling for supplies," says Dunn.

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