An 8.4 percent jump in the average all-milk price in 2013, from $18.56 per hundredweight to $20.12, resulted in record cash receipts from U.S. milk marketings, according to USDA’s National Agricultural Statistics Service.
Those cash receipts, which represent gross income, were up 8.7 percent from 2012, from $37 billion to $40.3 billion. U.S. milk production in 2013 was up just 0.3 percent, from 200 billion pounds to 201 billion pounds, with 12,000 fewer cows.
California, with the lowest all-milk price of $18.48 per hundredweight, led in cash receipts with $7.62 billion. Wisconsin followed with $5.54 billion. New York was third with $2.85 billion, and Idaho was fourth with $2.57 billion. Pennsylvania rounded out the top five with $2.27 billion.
Six other states also topped $1 billion in sales, including Michigan, Minnesota, New Mexico, Ohio, Tennessee, and Washington.
Higher milk prices and record-high cash receipts suggest good returns for growers, but production costs were also up year over year. The national average feed costs on dairies jumped $1.74 per hundredweight of milk to $15.91, and total operating costs jumped $1.84 to $19.22, according to USDA’s Economic Research Service.
Using ERS costs statistics, the average net return to producers on gross value of production in 2013 (which includes more than milk sales) was $3.17 per hundredweight of milk above the national average $19.22 cost of production, but that doesn’t include overhead costs. If ERS overhead costs were included, bringing total cost to $27.42, producers would have seen an average net loss of $5.03 per hundredweight.
The costs estimated by ERS, however, don’t necessarily reflect actual overhead incurred by individual producers.
The two largest items in overhead costs are the opportunity costs of unpaid labor and capital recovery, said Bill McBride, ERS economist.
The unpaid labor charge is similar to a salary the farmer pays himself and other unpaid workers, such as family members. That wage rate used by ERS for 2013 was more than $20 an hour. Some producers may be willing to accept a return on their time less than that figure, he said.
The capital recovery cost includes economic depreciation, an amount set aside to replace capital assets as they wear out. Producers don’t have to incur that cost every year but eventually they must pay to replace capital assets, he said.
Producers might also have lower feed costs than ERS estimates on homegrown feed and pasture rental rates, he said.
ERS cost of production statistics are valuable as indicators and do provide consistency for comparison, but they don’t reflect reality on the farm, said Tom Barcellos, president of Western United Dairymen and a Porterville, Calif., producer.
California producers were able to pay all their bills and would have cash flow on their operations in 2013, but some might have struggled trying to pay back loans, he said.
Income was healthy enough that some producers began catching up on deferred maintenance in 2013, and construction workers were swamped with work on dairies in the first quarter of 2014, he said.
Barcellos said he thinks milk prices are going to hold in 2014.
Exports still look good, and with the feed challenges dairymen will face — due to weather across the country and drought in California — and strong cull cow prices, dairymen will keep their milk production in line with demand, he said.
“I’m really optimistic, with the exception we have no water,” he said.
It’s going to take a good plan, but it should be a good year. Most producers are finding ways to source feed, but they’re going to need rain for next year, he said
ERS is also projecting a good year for dairy producers, bumping up 2014 milk prices in its May 15 Livestock, Poultry and Dairy Outlook.
The agency projects Class III and IV prices to average $20.27 and $21. 45 per hundredweight, respectively, and projects the all milk price at an average of $22.85.