September 7, 2001
RETURNS TO DAIRY PRODUCERS DROP IN 2000
Significantly lower milk prices resulted in total economic costs exceeding returns
for Illinois dairy producers in 2000, according to figures summarized by University
of Illinois agricultural economists in cooperation with the Illinois Farm Business
Farm Management Association.
The average net price received per 100 pounds of milk was $11.85 which was
less than total costs of $13.56. The average price received for milk in 1999 was
$14.58. On a per cow basis, total returns from milk were $2,265 compared to the
total cost to produce milk of $2,589 per cow. This is the first year since 1997
when total costs exceeded total returns. Total returns have exceeded total economic
costs four out of the last ten years.
MILK PRODUCTION PER COW INCREASES
Milk production per cow averaged 19,108 pounds. The average was 905 pounds
more per cow than in 1999 and at its highest level ever. The previous high
was in 1999 when milk production was 18,203 pounds per cow. Milk production per
cow has increased 12 percent since 1996.
COSTS AND RETURNS
Trends in total costs and returns per cow are given from 1991 to 2000 in Figure
1. The profit margin (return above all cost) decreased from $125 in 1999 to a
negative $324 per cow in 2000. The 2000 returns per cow were the lowest since
1980 when returns were a negative $320 per cow. The last five year returns above
all costs has averaged a negative $61 per cow. During this period, returns above
all costs per cow have varied from a negative $324 in 2000 to $174 in 1998. In
figure 1, labor and interest charges are included in total costs only. Most dairy
producers will incur some hired labor and cash interest expense and would include
them as cash operating costs.
The 2000 returns were $2.39 per 100 pounds produced lower than the 1999 returns
due to lower milk prices. The average net price received for milk was $11.85 per
100 pounds. This is $2.73 per 100 pounds or 19 percent lower than the average
price received in 1999. Based on 19,100 pounds of milk produced per cow, this
decrease in price decreased total returns per cow by $521. The average net price
received for milk for the last five-year period is $13.90 per hundred pounds
While the price received per 100 pounds of milk decreased, feed costs also
decreased and non-feed costs remained about the same per 100 pounds of milk produced.
Feed costs in 2000 averaged $6.23 per 100 pounds of milk produced as compared
to $6.56 in 1999. Feed costs have decreased 28 percent since 1996. Feed costs
of $8.66 per 100 pounds of milk produced in 1996 were the highest on record. Feed
costs were 46 percent of the total cost to produce milk. Non-feed costs per 100
pounds of milk produced were $7.33 in 2000 compared to $7.34 in 1999.
Profit margins for dairy producers in 2001 will increase compared to 2000 profit
levels due to higher milk prices. Total returns are expected to exceed total economic
costs due to a substantial increase in milk prices. While the average price received
for milk in 2000 was 19 percent lower than the average in 1999, the average milk
price for 2001 is projected to be about 24 percent above the average for 2000.
The number of milk cows in the United States in 2001 is expected to be slightly
lower than in 2000. With a slight decrease in milk production per cow, total milk
production is projected to be about 1 percent lower in 2001 compared to 2000.
This will result in higher milk prices.
While milk prices have increased, feed costs may also increase somewhat but
are expected to remain at relatively low levels in 2001. Continued abundant grain
supplies have kept grain prices low. Feed costs per 100 pounds of milk produced
would average about $6.45 using prices of $1.90 per bushel for corn, $.1275 a
pound for protein and $80 a ton for hay. If non-feed costs per 100 pounds of milk
produced averaged $7.25, total costs to produce 100 pounds of milk would be $13.70.
A 24 percent increase in milk prices in 2001 for Illinois producers would result
in an annual price of about $14.70 per 100 pounds. If total economic costs averaged
$13.70 per 100 pounds of milk produced, the average Illinois producer would have
total returns exceed total economic costs by $1.00 per 100 pounds of milk produced.
A more thorough report can be found at the University of Illinois Farmdoc website:
Issued by:Dale Lattz, Department
of Agricultural and Consumer Economics