Milk Price, Feed Cost, and Margin: A Historical Perspective

Robert C. Goodling, Jr. Penn State Extension Associate, Dairy

Fluctuating milk prices and feed costs stress dairy operations’ cash flow. Making decisions based on milk margin and income over feed cost are crucial to profitability.

2017 has been another year of restricted milk income for dairy operations. The extended period of low milk prices since the second half of 2015 has stressed dairy cash flow. This price depression has extended beyond the typical three-year price cycle that milk price has exhibited since the late nineties. Being aware and routinely monitoring an operation’s margin per cwt and income over feed cost (IOFC) per milk cow per day is a common practice that most farms should be doing if they aren’t already.

Looking back over the last 17 years, IOFC has definitely had its ups and downs. Figure 1 depicts the PA all milk income (dotted line) and PA IOFC (solid line). Both numbers reflect the performance of a milk cow producing 75 pounds of milk a day, and have been adjusted for inflation. It is easy to see the influence milk income has on IOFC, noting low price time frames like 2006, 2009, and 2012. It is also important to look at the area between the two lines, which reflects feed cost. Though feed costs have been relatively consistent for the last several years, they have been higher than historical averages, resulting in lower IOFC.

Data sources for price data:

All Milk Price: Pennsylvania and U.S. All Milk Price (USDA, 2017)

Alfalfa Hay: Pennsylvania and U.S. monthly Alfalfa Hay Price (USDA, 2017)

Corn Grain: Pennsylvania and U.S. monthly Corn Grain Price (USDA, 2017)

Soybean Meal: Feed Price List (Ishler, 2017) and average of Decatur, Illinois Rail & Truck Soybean Meal, High Protein prices, National Feedstuffs (Gould, 2017).

Monitoring income over feed cost is not a new concept. A colleague recently shared a “Cost of Producing Milk in the Dauphin County Dairy Herd Improvement Association” report from 1937 (Moffitt and Armes, 1937). The report, summarized by the Pennsylvania State Extension Agents at that time, lists the cost of production summary for 11 herds that averaged 21 cows. That cost of production included: the gross milk price, feed, labor, milk hauling, dairy direct expenses, and overhead expenses. More importantly, it had a section examining not only feed cost, but IOFC (value of product above feed cost), and even a feed cost per pound of butterfat. It is important to note that this feed cost was a total feed cost, and not just a milk cow feed cost.

To supplement the comparison of 1937 to 2016, a “1991 Pennsylvania Dairy Farm Business Analysis Summary” from Penn State Extension was included. That report had summarized financial data for 1,060 Pennsylvania farms that averaged 69 cows (Ford, S.A., 1992). To determine the total feed cost with this data, the purchased feed and direct crop costs for the dairy enterprise were utilized. Results from the 2016 financial summaries of 24 herds participating in the Penn State Extension Dairy Team’s Crops to Cow project rounded out the three time point comparisons (Beck et al., 2017).

Gross milk price per cwt has come down since 1937 when adjusting for inflation, but so has feed cost. Figure 2 represents the inflation adjusted gross milk price (line), feed cost (grey shaded bar), and milk margin (solid black bar) for the three years. 2016 represented the lowest milk margin of all three years.

Let’s not forget that the reports in 1937 were on a per cow basis. So, adjusting these numbers for the reported milk production per cow for the respective years allows for a comparison of milk income (solid line), total feed cost per cow (grey shaded bar), and the estimated IOFC (solid black bar) in Figure 3. This comparison reveals a little different story. Milk income for 1937 and 2016 were relatively similar, and 1991 had nearly $1 less milk income than either year. Feed costs had the opposite trend. 1991 had the lowest feed cost, with 1937 being slightly lower than the feed cost of 2016. The end result is an IOFC relatively similar across those three years, averaging about $5.40 per cow.

Today’s fluctuations in milk price and feed cost can stress a dairy operation’s profitability and cash flow. Monitoring and making management decisions on evaluations of milk margin and IOFC are crucial to the continued success of today’s dairy enterprise. Producers eighty years ago saw the benefit of annual cost of production estimates using much less sophisticated technology and methods than are available today. For more information and tools to help with estimating IOFC or determining cost of production, check out our Penn State Extension Dairy Team’s Business Management resources.


  • Robert C. Goodling, Jr. Penn State Extension Associate, Dairy

    Bailey, K., and V. Ishler. Dairy Risk-Management Education: Tracking Milk Prices and Feed Costs. Penn State Extension. Accessed 9/20/2017.

  • Beck, T. J., V. A. Ishler, and R. C. Goodling. 2017. Dairy Enterprise Crops to Cow to Cash Project, the Pennsylvania State University. Unpublished raw data.
  • Ford, T. 1992. 1991 Pennsylvania Dairy Farm Business Analysis. Penn State Extension. Extension Circular 403.
  • Gould, B. 2017. National Feedstuffs: Soybean Meal, High Protein. Summary of USDA AMS Grain Reports. Accessed 10/1/2017.
  • Ishler, V. Feed Price List. Personal Communication. Accessed 9/17/2017.
  • Moffitt, E. L., and M. J. Armes. 1937. Cost of Producing Milk in the Dauphin County Dairy Herd Improvement Association. The Pennsylvania State College School of Agriculture and Experiment Station.
  • USDA NASS, 2017. Agricultural Prices, Quick Stats version 2.0. Accessed 10/1/2017.


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