US Dairy Farmers Face Rising Feed Costs and Margin Pressure
Feed is among the largest operating expenses on commercial dairy farms, and recent increases in grain and ration prices have raised the cost of producing milk. The changing relationship between milk revenue and input expenses has increased the importance of farm-level cost analysis, according to dairy risk-management specialist McCarty.
McCarty advises producers to establish a precise production-cost figure before using market prices to guide decisions. This includes calculating the farm’s breakeven levels for Class III and Class IV milk. Those figures allow producers to compare available futures prices with the minimum revenue needed to cover their costs and to assess whether a forward price offers sufficient protection.
Without farm-specific breakeven data, producers may have difficulty determining whether a market price provides an acceptable floor or leaves the operation exposed to a loss. Feed expenses require particular attention because changes in grain and ration prices can materially alter the profitability of a dairy business. Corn, soybean meal and other feed components may affect the margin independently of milk prices.
Government and commercial protection
The federal Dairy Margin Coverage programme remains one of the available tools for US dairy producers. It makes payments when the national dairy margin falls below a coverage level selected by the producer. The margin is calculated from the US all-milk price and a formula for feed costs, so the programme addresses the relationship between milk revenue and feed expenses rather than milk prices alone.
McCarty described DMC as a foundational element that producers may include in a wider risk-management plan. Changes in federal farm legislation also permit eligible producers to revise their historical production bases using their highest annual milk-marketing volumes from 2021 to 2023. For participating farms, that change may increase the amount of milk covered before the next enrolment period.
Producers can combine DMC with commercial insurance and hedging products. Dairy Revenue Protection covers declines in quarterly milk revenue based on settlements in the futures market. Livestock Gross Margin for Dairy instead focuses on the spread between milk values and covered feed costs, calculating the margin by comparing Class III milk values with the cost of key ingredients such as corn and soybean meal. Futures contracts and other hedging arrangements can be used to manage exposure to movements in market prices.
McCarty cautions that protecting milk revenue alone may leave a farm exposed to higher feed costs. A producer could insure against a fall in milk revenue while remaining exposed to a substantial rise in corn or soybean meal prices. He recommends connecting each risk-management decision to the farm’s actual breakeven costs, milk-pricing structure and feed requirements rather than choosing a product solely because it has the lowest price.
