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Milk Prices, Costs of Nutrients, Margins and Comparison of Feedstuffs Prices


Milk prices: the surge to $16/cwt

In the last issue, the Class III futures for January and February were at $13.80 and $14.00/cwt, respectively. The Class III component prices for the month of January and February closed at similar prices of $13.96 and $13.89/cwt. The Class III future for March is similar to January and February component prices at $13.78/cwt followed by a jump to $15.09/cwt in April.

The $1.25/cwt jump for the April Class III advanced price is like a ray of sunshine in what has been a field of darkness for the dairy industry. For nearly all of 2018, the Class III price averaged around $14.50/cwt. The beginning of 2019 has not been any better, and prices have averaged less than $14/cwt. However, this increase in the Class III price over $15/cwt should be the beginning of a surge to $16/cwt. Looking at Chicago Mercantile Exchange (CME) Class III futures, they are trading at or above $16/cwt starting in July and for the remainder of 2019. If the CME futures are right, this would be good because $16/cwt is what I would consider breaking even based on current feed prices. Whether prices can surge far beyond $16/cwt is a tossup and will largely depend on if total milk production starts to decline in the U.S., which is likely given steady decreases in total cow numbers.    

Nutrient prices

As in previous issues, these feed ingredients were appraised using the software program SESAME™ developed by Dr. St-Pierre at The Ohio State University to price the important nutrients in dairy rations, to estimate break-even prices of many commodities traded in Ohio, and to identify feedstuffs that currently are significantly underpriced as of March 24, 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.  

When looking at commodity and nutrient prices, they are about the same as the previous issue. For MP, its current value has decreased $0.03/lb from January’s issue ($0.45/lb), whereas the cost of NEL is similar to January (5.8¢/Mcal). The price of e-NDF and ne-NDF are also close to last month at 7.8¢/lb and -2¢/lb (i.e., feeds with a significant content of non-effective NDF are priced at a discount), respectively.

To estimate the cost of production 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 this issue, the income over nutrient cost (IONC) for cows milking 70 lb/day and 85 lb/day cows is about $8.23/cwt and $8.60/cwt, respectively. These IONC are better than what I estimated in January ($8.07/cwt and $8.45/cwt, respectively). These IONC may also be overestimated because they do not account for the cost of replacements or dry cows. Nonetheless, current IONC suggests profits for dairy farmers in Ohio are still less than breaking even.

Table 1. Prices of dairy nutrients for Ohio dairy farms, March 24, 2019.

Economic Value of Feeds

Results of the Sesame analysis for central Ohio on March 24, 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, March 24, 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, March 24, 2019.

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

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.

Appendix

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, March 24, 2019.

Source: dairy.osu.edu


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