February 2019 Management Report

FARME Institute

For February, our example herd was UP

Protein decreased $0.01/lb, fat increased $0.03/lb and other solids decreased 10%. On a hundred-weight basis, Statistical Uniform Price (3.5% fat) increased $0.23/cwt and Class III price decreased $0.7/cwt which resulted in PPD increasing $0.30/cwt. We had previously predicted PPD to increase $0.27/cwt. Regionally, fat and protein were flat.
What now? We are 12 months past the recent low point in milk price which was Feb 2018 with a standard uniform price (Boston; SUP) of $14.88/cwt. The SUP in February 2019 was $1.77/cwt higher. For the last 6 months, the Boston SUP has averaged $16.64. Correcting for components, actual milk sold in February received, on average, $1.42/cwt more than SUP. Using the current CME prices, we are projecting another $1.35/cwt recovery in SUP across the next 12 months. From the graph below, the following scenario seems to be evident, based on Boston prices. Farms need to be positioned to survive short down-turns of under $15/cwt. The break-even target should be in the $16.50/cwt range with profit being secured above that point. If we met this goal, 2017 would have been $0.94/cwt above and 2018 would have been $0.41/cwt below breakeven. To place these prices into perspective for your farm, your need to add the value of additional components, premiums, and volume bonuses, and then subtract the PPD differential along with any market adjustments. For our example herd in Syracuse that is making 3.9% fat, 3.1% protein, we subtract 0.75/cwt for the PPD differential and add about $1.20/cwt for higher components which gives us a break-even target of $16.95/cwt. So, the main question is “How do we organize the cost structure to fit into the $16.95/cwt box?”



The State of the Dairy Industry is “Sharpening” – The dairy industry is not immune to the larger forces shaping the social/economic landscape. Consumer demands are changing, our currency is strong, and there is turmoil around trade arrangements. At the same time, the dairy industry came off some incredibly high milk prices in the 2014 boom that led to many pencils getting dull around the management table. Sharp managers scrutinize cost without making the mistake of trying to save themselves into prosperity. It is OK to spend $1/cwt if it returns more. The main difference between high and low milk price is the risks that you are willing to take. A feed additive that is $0.10/cwt requires less justification when milk price is above break-even compared to when milk price is below break-even. In this new paradigm, it is not OK to be in the 7 pounds of components club if doing so results in higher feed costs/cwt.

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