Missouri Dairy Business UpdateCommercial Agriculture
Volume 1, Number 1

September 2001

Sky High Heifer Prices:

Dairymen often question how long people can afford to keep paying sky high prices for heifers (see Blansit Sale Results). The short answer is "a long time".

The longer answer is that as long as there are buyers with underused facilities, milk prices that are decent, and feed that is cheap, dairymen will continue to add high priced heifers to their herds. Remember: If Margin Revenue > Marginal Cost, then expand.

Using average Missouri prices, Wisconsin's spreadsheet below makes that point.


Average Per Hundredweight*
Milk Price$15.00Cow's Productive Life (months)24
Feed Costs$7.25Production Per Cow (pounds)17,500
Labor Costs $2.50Average Cull Value$350
Vet, Elect, Marketing, Etc.$1.50Average Calf Value$95
*over her productive life Interest Rate9.00%

Break Even Price of a Cow at Various Milk Price and Production Levels
 
Milk Price
$14.00$14.50$15.00$15.50$16.00
Milk Sales Per Cow Per Year (pounds)
15,500$1,217$1,358$1,499$1,641$1,782
16,500$1,267$1,417$1,568$1,718$1,869
17,500$1,317$1,477$1,636$1,796$1,955
18,500$1,367$1,536$1,705$1,873$2,042
19,500$1,417$1,595$1,773$1,951$2,129

Break Even Price of a Cow at Various Productive Lives and Production Levels
 
Milk
Per Cow
Cow's Productive Life (months)
1821242730
Milk Sales Per Cow Per Year (pounds)
15,500$1,272$1,387$1,499$1,609$1,717
16,500$1,324$1,447$1,568$1,685$1,800
17,500$1,377$1,508$1,636$1,762$1,884
18,500$1,429$1,568$1,705$1,838$1,968
19,500$1,482$1,629$1,773$1,914$2,051

Break Even Price of a Cow at Various Milk Price and Productive Lives
 
Milk Price
$14.00$14.50$15.00$15.50$16.00
Cow's Productive Life (months)
18$1,132$1,255$1,377$1,499$1,622
21$1,226$1,367$1,508$1,649$1,790
24$1,317$1,477$1,636$1,796$1,955
27$1,406$1,584$1,762$1,939$2,117
30$1,494$1,689$1,884$2,079$2,275


Missouri value added dairy projects

The Missouri Agricultural and Small Business Development Authority has currently funded two grants to look into value added dairy processing:

Continuing into phase II of his bottling study, Leroy Shatto of Shatto Farms Creamery, Osborn, is determining the feasibility and market for a producer-owned milk bottling facility. News Release.

Missouri Farmers Union, Jefferson City, is launching a study to determine if markets exist for natural milk and dairy products, as well as for the pre-engineering design of bottling and processing plants. News Release.


Dairy Price Risk Management

Excellent milk prices continue. Producers thinking about locking in milk prices for the next year, might want to download Ken Bailey's latest 41 page farmer tutorial on using futures and options to lock in dairy prices: New Report on Forward Contracting and Hedging Milk. Adobe Reader required to download.

Looking for a broker? This list of brokers who are familiar with milk futures was distributed to dairymen who attended the Dairy Options Pilot Programs. Adobe Reader required to download.

Dairy Marketing Clubs are becoming more common. Good information about starting and running a dairy marketing club is available from the National Ag Risk Education Library. Adobe Reader required to download.


Dairy Options Pilot Program

Singup ended July 28th for Round III of the Dairy Options Pilot Program, DOPP. In Missouri 22 producers actually completed the course requirements and the application to participate in this program where the government pays 80% of the put option premium used to put a floor under milk prices. Participation by county is as follows:

County
Number of Producers
Wright
11
Webster
1
Lawrence
2
Douglas
2
Howell
1
Barry
1
Ozark
1
Texas
2
Greene
1


Prepared by Joe Horner,  Dairy and Beef Economist, Commercial Agriculture Program, University of Missouri. To contact Joe, call 573-882-9339, or e-mail hornerj@missouri.edu. All copies of this publication are accessible through AgEBB.


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