FARME Institute May 2019 Management Report

This newsletter was written before the tremor USDA sent through the corn market.  Quoting the Daily Dairy Report, “Corn Shock Sends Future Tumbling”.  Planted acres are up 3% from last year and well above expectations given the wet year. Jul corn futures closed at $4.20/bu.  But, soybeans went the other way with 10% less planted acres. Jul soybean meal closed at $313/ton.



  • Milk price was up $0.41/cow/day for our example herd
  • The state of the dairy industry is “nervous”
  • Is it all about components?

For May, our example herd was UP

Protein increased another $0.13/lb and fat increased $0.03/lb. Other solids price decreased 7%. On a hundred-weight basis, Statistical Uniform Price (3.5% fat) increased $0.46/cwt and Class III price increased $0.42/cwt which resulted in PPD increasing $0.04/cwt. Due to a keyboard error, we had previously predicted PPD to decrease $0.17/cwt. When the keyboard error was fixed, our PPD prediction was an increase of $0.03/cwt. Regionally, fat and protein continued their seasonal downward trend.

The state of the dairy industry is “nervous” – While attending the 2019 American Dairy Science Association meetings in Cincinnati, numerous hallway discussions developed along the lines of wet weather driving up forage costs on dairies. “What are we going to feed dry cows?” was a common question given there is very little straw and most of it is very expensive. On the second page is a graph of the recent runup in corn prices. July corn is trading at $4.47/bu and December corn is at $4.56/bu. This is up significantly from the $3.50/bu benchmark seen for the last few years. Meanwhile in the Northeast (also Midwest) corn planting and emergence is running about 20 percentage points below last year. There is no doubt, that farms with limited carry over of forages will have higher feed costs. Those with significant carry over will look like geniuses this year. On the positive side, milk prices for the next year should average over $18/cwt for the Boston SUP. Since 5/25, the reported price of butter sales has been above the $2.30/lb. On another note, the flux of cattle inventories, especially heifers, have several consultants arguing that there will be a shortage of milk before the pendulum swings to a “normal” position. There is no doubt that the number of herds breeding their low-end cows to beef bulls is increasing and, especially with a tight forage situation, the number of heifers on the balance sheet should be carefully evaluated. However, one should not forget the resiliency of the US dairy industry to get more milk out of fewer cows. Let’s all hope that China’s appetite for SMP continues and that they begin to buy it from the USA.



Is it all about components? - For our example herd, components make up 90% of the pay price for milk ($14.10/$15.57). On the surface, it appears that one should focus only on fat and protein. But, let’s look at this another way. A common metric is that it cost $0.17/lb to make other solids in milk. Our example herd has 4.85 lbs (5.7% * 85) of solids per cow which cost $0.82. The value of these solids is $1.47 ($15.57 – $14.10). This is a 1.8x return on investment. It does pay to make lactose and water! Just don’t sacrifice pounds of components in the process.

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