A sluggish global economy and spring milk surpluses should keep prices low for the foreseeable future. That is the lesson to be learned from the April edition of Jim Dunn’s “Dairy Outlook” published monthly via his website, www.personal.psu.edu/jwd6/.
While production has stabilized in Europe after the removal of the quota system, as well in Australia and New Zealand, the U.S. typically sees an increase in production during the spring months.
Pennsylvania felt this spring surplus — also known as “spring flush” — particularly strong in 2015 and producers may face a similar situation this year.
One way to manage this risk is to take advantage of some of the concepts discussed in previous months’ Market Movements columns.
Jim Dunn predicts the March all-milk price in Pennsylvania to be $16.60 per hundredweight and average $17.75 per hundredweight for the year.
For individual farms to maximize milk income, shipping more milk is one option. However, as the market faces a surplus in supply, one strategy in increasing milk income per cow is to focus on components and find the balance between sufficient production and pounds of fat and protein shipped.
Each cooperative or milk processor prices milk differently and premiums for quality and components vary. As a producer, knowing what the options are for each premium level is important to know what opportunities exist to enhance milk income.
On the feed side, Dunn notes that the South American soybean crop should reach record levels and keep protein and energy prices low, despite a slight increase in soybean prices last month.
Income over feed cost is the measure of gross milk income over the cost to feed the milking cows on a per cow per day basis. This value can be used on farms to help track profitability because it accounts for the income side of the farm budget as well as the largest expense on most dairy farms: feed.
Penn State publishes monthly IOFC reports for the average herd in Pennsylvania using market feed prices. The March Penn State IOFC was $6.48 per cow per day, which means that this average farm has a milk income of $6.48 per cow left after it pays to feed the lactating cow each day.
Pennsylvania’s March IOFC is 2.9 percent lower than February. Of the 51 farms that reported their 2015 income and expenses for the Penn State Extension dairy team, the average IOFC for these farms landed at $7.01 per cow per day for the year.
Virginia Ishler, feed management specialist at Penn State, publishes an online review of Penn State’s IOFC and current feed and financial management — Dairy $ense — each month at http://extension.psu.edu/dairy.
Both of the main factors that influence IOFC, milk income and feed costs, are projected to remain low for 2016. Though the current IOFC for Pennsylvania is lower than most farms would like and approaching breakeven levels, one redeeming factor is that the lower feed costs mean that IOFC should remain consistent or improve slightly as milk prices begin to recover later in the year.
Heather Weeks is an Extension educator with Penn State Extension, based in Carlisle, Pa. Her areas of expertise are dairy business management, Farm Bill-Dairy Margin Protection Program (MPP), Spanish language programs, human resource management, and gender and development. She can be reached at email@example.com or 717-240-6500.