Reports Offer Updated Economic Conditions

November 2, 2012 — The U.S. Department of Agriculture released several reports and indexes in the past week, providing updates on the economic conditions faced by dairy farmers. DairyProfit Weekly’s Dave Natzke reported on Friday’s DairyLine:
USDA released its monthly Milk Cost of Production data for September, revealing total dairy farm production costs were likely the highest on record. The index, which covers everything from feed and labor to overhead costs, estimated total costs to run a dairy farm averaged more than $28 per hundred pounds of milk sold in September. Operating costs, such as feed, supplies and services, averaged nearly $20 per hundredweight, slightly higher than the national average price farmers received for milk in September.
USDA also released its monthly milk-feed price ratio, an index based on the current milk price in relationship to feed costs. That report showed economic conditions improved somewhat last month, with higher milk prices offsetting slightly higher corn and alfalfa hay prices. At 1.68, the October index was the highest since January, but still below a year ago, and the 19th consecutive month below 2.0.
The squeeze on dairy producer margins is having an impact on the value of both cull and replacement dairy cows. With high feed prices, more dairy cows are being sent to slaughter, and average prices for cows sold for beef declined in October, dipping to their lowest average of the year. And, with the nation’s dairy herd shrinking from its peak last April, the average price paid for a replacement cow fell in October, to $1,390 per head. That’s the lowest average price since January 2011.
Adding to the improved outlook are announcements that October and November milk prices will be the highest so far this year, helping offset the higher feed costs as we move into winter. How long the improved economic conditions last, and what safety nets are in place, could depend on next Tuesday’s elections, and what, if any action is taken on a 2012 Farm Bill.

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