Milk prices plateaued, but feed costs continued to rise in June, cutting into monthly dairy producer milk income over feed cost (IOFC) margins calculated under the Dairy Margin Coverage (DMC) program.
The USDA released its latest Ag Prices report on July 29, including factors used to calculate June DMC margins and potential indemnity payments. The June DMC margin is $11.92 per hundredweight (cwt), down 59 cents from May but above the top Tier I insurable level of $9.50 per cwt (Table 1) for a seventh consecutive month.
With the recent weakness in milk futures prices, the USDA’s DMC decision tool indicates something most would not have believed just a week ago: Monthly margins could shrink to levels triggering small indemnity payments in the second half of this year.
Milk price slips from May record
The June 2022 announced U.S. average milk price fell 40 cents from May to $26.90 per cwt. Despite the small decline, it still represented the third-highest all-milk price in history and left the April-June quarterly average above $27 per cwt.
Through the first six months of 2022, the U.S. all-milk price has averaged $26.02 per cwt, surpassing the $24.37 per cwt average for January-June 2014, the last high-water mark for all-milk prices.
June milk prices were lower than the month before in 16 of 24 major dairy states, up in seven and unchanged in California (Table 2). Largest month-to-month declines were in South Dakota (-$1.60), Minnesota (-$1.40), Wisconsin (-$1.20) and Iowa (-$1.10). Largest increases were in Florida (+80 cents) and Pennsylvania and Virginia (both +40 cents). New Mexico was the only state where the June average price was less than $25 per cwt.
Compared to a year earlier, June 2022’s U.S. average milk price was up $8.70 per cwt. Year-over-year prices were up $9 per cwt or more in six states, led by a $9.50 increase in both California and Washington.
Feed costs increase
With slightly lower average milk prices, higher overall feed costs put a dent in margins (Table 3).
- The average price for corn rose another 11 cents from May to $7.37 per bushel, the highest on record since the inception of the DMC program or its predecessor, the Margin Protection Program for Dairy (MPP-Dairy).
- With the DMC change to include the price of dairy-quality alfalfa hay in feed cost calculations, the June average price for hay was $277 per ton, up $3 from May and also the highest on record.
- The average cost of soybean meal rose to $445.93 per ton, up $4.65 from May.
June feedstuff prices yielded an average DMC total feed cost of $14.98 per cwt of milk sold, all all-time record high during the DMC or MPP-Dairy era dating back to March 2014.
Other costs continue to rise
Outside of feed, other costs continued to rise. The June index of prices paid for commodities and services, interest, taxes and farm wages was up 0.5% from May 2022 and up 13% from June 2021. The June fuel cost index was up more than 4% from May and 66% from June 2021.
Cull, replacement cow prices rise
Whether selling market cows or buying replacements, prices for both were up in the USDA’s latest estimates.
U.S. prices received for cull cows (beef and dairy, combined) averaged $90.20 per cwt in June, up $3.50 from May and the highest monthly average since September 2015.
Meanwhile, quarterly average replacement cow prices hit $1,710 per head in July, up 9% from April and 24% more than July 2021. Average replacement prices are still down about 19% from their most recent peak of $2,120 in October 2014.
