Best performing herds "only" losing purchased feed costs

Whenever the milk-to-feed ratio gets above 3, there is a strong incentive to produce more milk. That was the case in the second half of 2007 when Michigan dairy producers had a $10.66 margin of income over feed costs, reports Chris Wolf, Michigan State University ag economist. Similar profit conditions prevailed throughout the U.S. in 2007. In fact, 2007 represented the best margin ever when not adjusting for inflation.

What followed in just less than a year were all-time low milk-to-feed ratios, ranging below a 1.6 ratio throughout the first half of 2009, reports Wolf. At this time, all dairy farms are suffering great financial stress. The farms that are surviving right now used their money wisely through the good milk price years. “The best performing herds are simply losing their purchase feed costs right now,” says Wolf. “Others are faring much more poorly.” Shown in the table are actual expense and revenue numbers for Michigan farmers this decade. (Click on the above image to ENLARGE it.)

As many know, the 2008 export market (which peaked at 11 percent of all U.S. production) was an all-time record. This helped underpin 2008 milk prices. “Currently, we are exporting half of what we did in 2008 which is causing inventories to build,” notes Wolf. Right now, cheese stocks are over 100,000 pounds over the same time last year. “Unfortunately, the holiday cheese orders are done,” says Wolf. “I believe these high inventories may cause spring futures on the Chicago Mercantile Exchange to retreat slightly due to heavy cheese inventories.”