Wednesday, April 29, 2015

What is up (or down) with the price of milk?

No big observation for this posting.  New data from USDA ERS on the cost of producing milk came out today, and I was just looking at the numbers.

I knew feed would be a large cost for dairy farmers but I did not know it was of this magnitude.

If you too are curious, take a look.  Next time you hear the price of milk has increased (or decreased) the primary reason might be the cost of this vital input.  Cows gotta eat!

The data are for the whole US dairy industry and this graphic includes only the "operating costs". These would be considered "Variable Costs (VC's)" for the purposes of Microeconomics.  Using Excel, I took the average for each year (costs were listed by month in the spreadsheet).

The bottom line for what what I wanted to look at is in RED. 

"CWT"= 100 pounds of milk. Total Operating Costs for 2014 were $16.42.  Divide this by 100 and you get the per pound cost of producing milk---$.13 (13 cents).

There are about 8.6 pounds in a gallon of milk.

So, total operating costs (but not ALL costs) for the dairy farmer to produce a gallon of milk are $1.12. Remember that the next time you are at the grocery store!

Feed costs are the obvious out-sized individual cost of producing milk---pretty close to 80% of operating costs.

Feed costs increased 27%**  from 2010 through 2014 and all other operating costs have increased by 6.7%.

**Note:  feed costs in 2014 were, in percent terms, lower than in 2012 and 2013 so the average increase is likely larger---I did not calculate it.
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