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Exports, corn prices pulling on dairy margins

Seventeen dollars. That's the magic number for dairy farmers this year.

Milk producers, at least in Illinois, need to earn $17/CWT to cover all their variable, fixed and labor costs this year, says University of Illinois animal science professor emeritus Mike Hutjens. That's doable under current market conditions, but "dairy managers need a full year of these margins to replace lost equity in 2009-2010," he says.

There are several variables in play dictating whether the milk market will stay where dairy farmers can continue to stay in the black, Hutjens says. First is the export market, which right now comprises around 13% of current U.S. milk solkds production. That global demand needs to keep up, Hutjens says, to sustain current margins.

Energy prices -- namely for those going in to raising this year's corn crop -- will also have a lot to do with the profitability for dairy farmers. Finally, corn prices themselves will be the biggest variable affecting milk profitability this year.

"Corn price will also impact profit margin,” Hutjens says. “Late planting of corn in the Midwest, flooding along major rivers such as the Mississippi, and drought in the southwest will impact corn and feed price. Higher corn prices will raise the price of corn silage, forages and by-product feeds.”

Hutjens suggests these ways, according to a university report, dairy farmers can stay ahead of costs, which could determine where they land in relation to that $17/CWT price target:

  1. Keep total feed cost per 100 pounds of milk less than $7.00 per cwt (for lactating cows, not dry cows and replacement heifers).
  2. Forage quality will be critical to reduce purchased feed costs. Alfalfa/grass forage should be more than 150 relative forage quality (RFQ), high yield per acre, and more than 20 percent crude protein. Corn silage should be more than 30 percent starch, high in dry matter yield per acre, and more than 55 percent neutral detergent fiber digestibility.
  3. Feed inventory should be calculated, planned and/or stored to meet 2011-2012 herd needs. If more acres of corn silage or a summer annual are needed, make that decision now.
  4. By-product feeds can be an excellent source of economic feed nutrients. Table 1 lists the breakeven value of by-product feeds. If you can purchase these feeds below the breakeven price, it is cheaper than nutrients provided by shelled corn, soybean meal, and fat/oil.
  5. Maintaining high milk yield results in more income, potential profit, and feed efficiency.  The following guidelines can be used to evaluate a dairy herd.
    -Feed cost per pound of dry matter under 12 cents
    -Feed efficiency more than 1.4 pounds of milk at 3.5 percent fat per pound of dry matter consumed
    -Income over feed costs greater than $10.00 per cwt
  6. High premiums for milk with higher milk protein and fat content and lower somatic cell counts can add 50 cents to $1.50 per cwt.
  7. Getting cows pregnant will maintain milk production as cows remain at higher levels of milk yield (target an average 170 days in milk).

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