Milk-Feed Indices for October, November and December lost 97 cents this week, at $10.73 per cwt.  First quarter 2023 M-F Indices average $9.20 per cwt., and second quarter averages $8.47 per cwt.  For reference, there were some 12s before the decimal a month or so ago, at least for a while.  More sobering is that USDA government milk subsidies may be on the table again next spring.  The monthly Milk-Feed Index is a function of Class III milk, corn and soybean meal prices.  USDA uses the all-milk price, corn, soy and dairy quality hay values in their figures that start to pay out when margins are under $9.50 per cwt.

Futures on the M-F Index warrant consideration every few days.  It would be wise to talk to your lender about this profitability benchmark during regular bank supplication, mainly so he or she knows you’re cognizant of what could be on the horizon.   I suspect that there are a few producers who will read this and think, “It’s time to get out of milking soon or maybe after the first of the year.”  

I can’t argue that one should milk or not milk based only on fluctuating milk margins but hauling rates in many areas are consuming, along with feed costs, and interest is ticking up.  Labour will continue to be a challenge.  Any producer not able to fill a tanker every 24 or 48 hours needs to realize they aren’t big enough for the ages, much less for the decade.  I’ll grant that some areas will still have milk trucks driving around to different farms for a few years, but that is becoming uncommon.

During the Jimmy Carter years, we had three processor milk trucks around here and one well regarded Reg. Jersey breeder with 15 cows that was four miles off the highway.  No route owner wanted to turn off pavement to get his milk, regardless of the hauling rate.  He had a 5.5% butterfat test, a 500 lb. herd average, and a tiny round bulk tank atop a long, narrow driveway.  It was a common registered Jersey herd model of the era, one that drew smirks from the 80 cow Holstein parlour herd owners.  No one's laughing at the Jersey industry today, incidentally.

The other thing that producers need to consider as lower margins may or may not visit in the future, is what does he or she want to be doing in five years, and what will it cost to recapitalize if that goal is to produce milk? 

Often producers want to keep the cows as a matter of family legacy or as an altruistic endeavor in family farming.   In all businesses, and this includes my CPA, my lender and my rural lawyer, the family business endeavor has some component of unicorns and romantic rainbows for older men, usually, who want a family legacy and want to ‘provide’ opportunity for the next generation.  

Any generation-to-generation business is admirable and noble, I guess.  But it seldom or never ensures that the subsequent owner and operator of an enterprise is the best and most capable to do so.  Only free enterprise and competition can determine this, and parents emotionally are less able to make a decision like this.  Gifting assets and enterprise specifically warps any accurate determination of who is most fit to farm the land and milk the cows, family member or otherwise. 

While I know that this is unpalatable to many of my readers, let us understand that most of Europe passed all estate value to the oldest son in order that a legacy may survive centuries.  There's a loose parallel here.  Many of the oldest sons were unfit, lazy and foolish drunkards and few estates survived. The sun fell on England 80 years ago and their estates had already been growing mold and weeds for a couple centuries. 

Class III milk futures for Oct., Nov., and Dec. average $22.20 per cwt., a loss of 64 cents for the four days of trade this week.  Class IV for the same three months averages $23.37 and that is down 35 cents.  Block cheese lost nine cents, barrels gained one and butter remains at a near record $2.97 per lb. 

Corn seems to have stopped its precipitous fall when the last crop report came out.  Sept. corn is up three cents for the week at $6.33 per bushel.  If you want to know more about the corn or soybean markets, go to wherever in your community that big cash grain farmers gather, because big cash grain farmers know everything.  Just ask one of them.  Soybean meal lost $4 for August.