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# Milk-cost ratio

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Milk-cost ratio

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### Milk-cost ratio

1. 1. Milk-cost ratio - an indicator of profitability in milk production The National Association of Danish Dairy Farmers
2. 2. Milk-cost ratio - an indicator of profitability in milk production Made by Landsforeningen af Danske Mælkeproducenter (The National Association of Danish Dairy Farmers)
3. 3. The income of a dairy farmer consists of his dairy money. But there are also production costs. All cows in Europe need feed, shelter and milking equipment to produce milk. The profit of a dairy farm is the difference between the dairy money and the production costs.
4. 4. ‘An army marches on its stomach’ Napoleon said. All cows need feed and shelter. Costs for labor, adviser, veterinarian, contractor etc. differ from country to country, and are part of each dairy farmer's competitiveness. q But feed, shelter and milking equipment are necessary for all.
5. 5. The following calculations are based on an EU standard dairy cow. The average yield per cow per year is 9.000 kg of milk. This cow daily eats equivalent to 6.5 kg of wheat, 6.5 kg of maize, 1.4 kg of canola and 1.6 kg of soy. All feed is purchased at market price on the MATIF exchange in Paris. Land, shelter and milking equipment cost 9,000 Euros. This means that the cowshed costs the interest expenses of one Euro per kg milk produced. The return is calculated on the basis of the Euro Bund price, 10 years, six per cent.
6. 6. date 23-01-2000 14-05-2000 03-09-2000 24-12-2000 15-04-2001 05-08-2001 25-11-2001 17-03-2002 07-07-2002 27-10-2002 16-02-2003 08-06-2003 28-09-2003 18-01-2004 09-05-2004 29-08-2004 19-12-2004 10-04-2005 31-07-2005 20-11-2005 12-03-2006 02-07-2006 22-10-2006 11-02-2007 03-06-2007 23-09-2007 13-01-2008 04-05-2008 24-08-2008 14-12-2008 05-04-2009 26-07-2009 15-11-2009 07-03-2010 27-06-2010 17-10-2010 06-02-2011 29-05-2011 18-09-2011 08-01-2012 29-04-2012 19-08-2012 07-12-2012 29-03-2013 19-07-2013 Cent Average EU milk price according to Dutch LTO. Average EU milk price, interest rate and feed cost per kg milk produced 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 Average milk price, LTO Feed cost per kg milk For updated graphs, please visit our website at http://www.maelkeproducenter.dk/00001/00113/ Interest cost per kg milk Average feed and interest cost per kg milk
7. 7. Milk-cost ratio based on milk price and costs for feed and interest The graph shows the relationship between current market prices for milk and resulting, calculated costs for feed, shelter and milking equipment plus interest costs. 2.60 2.40 2.20 2.00 1.80 1.60 1.40 1.20 date 14-05-2000 24-12-2000 05-08-2001 17-03-2002 27-10-2002 08-06-2003 18-01-2004 29-08-2004 10-04-2005 20-11-2005 02-07-2006 11-02-2007 23-09-2007 04-05-2008 14-12-2008 26-07-2009 07-03-2010 17-10-2010 29-05-2011 08-01-2012 19-08-2012 29-03-2013 M/C-ratio Milk/Cost ratio Milk/Cost For updated graphs, please visit our website at http://www.maelkeproducenter.dk/00001/00113/
8. 8. 2.60 2.40 2.20 2.00 1.80 1.60 1.40 1.20 date 28-05-2000 21-01-2001 16-09-2001 12-05-2002 05-01-2003 31-08-2003 25-04-2004 19-12-2004 14-08-2005 09-04-2006 03-12-2006 29-07-2007 23-03-2008 16-11-2008 12-07-2009 07-03-2010 31-10-2010 26-06-2011 19-02-2012 14-10-2012 07-06-2013 M/C-ratio Milk/Cost ratio Milk/Cost Earnings in Euro including EU subsidies. Source: The Knowledge Centre for Agriculture 75000 55000 35000 15000 -5000 -25000 2000 2001 2004 2006 2008 2010 2012 -45000 -65000 -85000 -105000 -125000 Earnings in Euro including EU subsidies. Source: The Knowledge Centre for Agriculture For updated graphs, please visit our website at http://www.maelkeproducenter.dk/00001/00113/ In a historic perspective, it is obvious that a positive revenue from milk farming requires a milk-cost ratio in the interval between 2,0 and 2,25 for Danish milk farmers. The bars on the left show the farm profit for average Danish milk farmers in the corresponding years. Other European milk farmers may show a different shaped relation between fluctuations in Milk-Cost and profit. The overall curve for milk-Cost ratio is valid for the whole Europe and seems to be at basic measurement for profitability in milk farming.
9. 9. FAQ A ration without roughage The described ration meets the basic nutritional needs. Though not applicable in practice, the ration represents a value equivalent to the value of a cow's ration. If a farmer can feed cheaper or sign good contracts, this improves his competitiveness as a dairy farmer. Prices are transparent in the sense that they are based on prices of the MATIF exchange in Paris.
10. 10. FAQ Labor The cost of labor varies widely within Europe and is part of the competitiveness of the individual farmer. Some places wages are so high that part of the work is placed by investments in mechanics and machinery. Therefore, labor is not included in the fixed costs.
11. 11. FAQ Investing one Euro Some farmers inherit their parents' farm, others must pay a lot for land and buildings. In any case, land, shelter and machinery represent a value that must be remunerated. If you are able to produce milk for an investment of less than one Euro per kg, you have a competitive advantage; if the investment exceeds one Euro per kg, this represents a competitive disadvantage.
12. 12. FAQ Comparison with one’s own farm The graphs cannot be directly compared to the production of a single dairy farm.
13. 13. FAQ Political regulation of milk prices The graphs are designed for use in the political debate on the regulation of the milk production and on how it can be done using a dynamic model. If the MC curve goes below the value of 2 for more than three consecutive months, a production regulation can be introduced. For example in the form of a premium for drying off earlier than scheduled, a slaughter premium or the like.