Low-cost dairy products
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IOFC was determined by taking the all-milk price minus the cost of feed. These three measures of IOFC were computed for this study using the feed rations: PA Complex, PA Simple, and US Simple. Each ration was paired with a measure of the milk price to determine a unique estimate of IOFC.
The following questions were answered:. Figure 1 shows these comparisons using the rations balanced for 65 lb. All three measures of IOFC are highly correlated and as one measure goes up, so do the other two and vice versa. Figure 1. Monthly comparison of USDA's milk-feed price ratio and IOFC using the pound milk production level.
Note: This study was conducted in and used data going from to the beginning of The two Pennsylvania measures of IOFC are very similar, and the U.
Simple measure is very close to the two Pennsylvania measures in dollar terms. The only difference is a matter of basis. The last comparison is the degree of correlation of the four-time series. IOFC for the two Pennsylvania rations and for the U.
ration was compared to the time series for the milk-feed ratio. The estimated correlation coefficients are presented in Table 2. The results indicate that the three measures of IOFC for Pennsylvania and the U. are highly correlated, having estimated correlation coefficients greater than 97 percent.
The milk-feed ratio is also highly correlated with these measures of IOFC, having correlation coefficient estimates of 84—86 percent. When this study was conducted in , the lb.
level most closely matched the average milk production in Pennsylvania. For , NASS reported the average milk production for Pennsylvania at 19, lb. However, over the years, milk production has increased. For , NASS reported the average milk production at 21, lb.
Using the lb. level is now more appropriate, and Figure 2 shows the comparison with the lb. The PA Simple ration for both production levels tracks very similarly.
Since , the milk-feed price ratio has tracked very closely with the lb. milk production level. Figure 2.
Annual comparison of USDA's milk-feed price ratio and IOFC using the and lb. milk production level, milk-feed price ratio, and IOFC using the lb. To operate a profitable business and make sound business decisions, IOFC is an easy benchmark to monitor. It is affected by feed costs, milk production, and milk price.
The approach of solely focusing on reducing feed costs when feed costs are high is rarely a smart decision. If milk production is compromised due to cutting out-of-pocket feed costs, IOFC can be further reduced, lowering overall farm profitability.
Maximizing IOFC may require evaluating different feeding strategies and following the expertise of a nutritionist before implementing major changes. Dairy operations should benchmark IOFC against their own farm. Table 3 illustrates the average IOFC and MM for the five years and twenty years up to for the three milk production levels.
Based on the milk and feed markets, there has not been a lot of change. Producers should calculate IOFC each month as milk production, milk price, and feed costs change. Benchmarking this measure against past performance and future goals will help the producer make favorable, economically beneficial decisions for the dairy.
One of the benefits of using the U. Simple IOFC measure is that the formula and data requirements are straightforward. This index can be computed monthly and then compared to different time periods to draw rough conclusions regarding past and future gross profitability for U.
dairy producers. For the U. Simple measure of IOFC, the feed basis is in Chicago, and the basis for the milk price is simply the difference between the U. all-milk price and the Class III milk price. Since there are futures contracts for Class III milk Chicago Mercantile Exchange and corn and soybean meal Chicago Board of Trade , these contract prices can forecast IOFC or help make hedging decisions.
These can be compared to the monthly forecast of a long-term average to decide whether forward contracting or hedging these milk and feed prices would be profitable.
Penn State used to release a report titled Dairy Outlook. It described what was happening in the milk and feed markets.
Tables 4 and 5 are from the October Dairy Outlook report. It used the following sources for price data:. Table 4: Twelve-month Pennsylvania and U.
Table 5: Twelve-month Pennsylvania and U. A simple measure of gross profitability has been constructed using IOFC. This metric measures gross profits on a per-cow, per-day basis, whereas the milk margin measures gross profitability on a per-cwt, per-day basis. One measure focuses on the cow and the other on lb.
Both are identical in that one is a simple transformation of the other. There are several advantages when using IOFC. It is more apparent what is being measured using dollars and cents versus a ratio. This is more relevant to a dairy producer.
Also, it is a better measure for management purposes since dairy producers can track their monthly IOFC to develop budgetary plans and meet monthly targets.
IOFC can be used in conjunction with the futures markets to help milk producers make better decisions regarding when to lock in milk and feed prices. Finally, IOFC is more sensitive to rising feed costs compared to USDA's milk-feed ratio. of feed used in the denominator of the milk-feed index may distort its true representation as a measure of gross farm profitability.
Agricultural Prices , published by USDA's National Agricultural Statistics Service NASS , Nutrient Requirements of Dairy Cattle , Seventh Revised Edition, Penn State Feed Price List, V.
Personal communication: vishler psu. The store will not work correctly when cookies are disabled. Tracking Milk Prices and Feed Costs. This informative publication details how milk and feed price volatility can have an adverse impact a dairy farm's profitability. Download Save for later Print Purchase Guides and Publications.
Tracking Milk Prices and Feed Costs This informative publication details how milk and feed price volatility can have an adverse impact a dairy farm's profitability. Add to Cart.
Updated: May 22, Skip to the end of the images gallery. Skip to the beginning of the images gallery. Milk Feed Ratio PA IOFC Simple 65 lb. PA IOFC Complex 65 lb.
Milk-Feed Ratio 1 PA IOFC Simple 65 lb. PA Simple Ration 65 lb. PA Simple Ration 75 lb. PA Simple Ration 85 lb. Virginia A. Tim Beck. You may also be interested in
Dairy milk, low-fat or fat-free (or lactose-free or fortified soy versions) Evaporated milk, fat free Greek yogurt, plain, nonfat