Methods
The methodology used to estimate the national monthly milk cost
of production (COP) is based on USDA's annual milk
cost-of-production estimates developed from the most recent
Agricultural Resource Management Survey (ARMS) of milk producers.
The most recent annual estimates are the baseline, and monthly
estimates are developed using indexes that reflect differences
between the month and the baseline. For example, the monthly milk
COP for April 2011 is estimated by indexing the 2010 annual milk
COP estimate. The indexes reflect price and milk production
differences between annual average conditions in 2010 and April
2011. The annual COP estimates from the most recent milk producer
survey, currently 2010, are used as the baseline until a new survey
is conducted and processed. Annual estimates from the next
survey then become the baseline for subsequent monthly
estimates.
Data used to produce the national monthly milk cost estimates
include:
- USDA's most recent ARMS of dairy operations, currently 2010.
The 2010 ARMS included milk producers in Arizona, California,
Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas,
Kentucky, Maine, Michigan, Minnesota, Montana, New Mexico, New
York, Ohio, Pennsylvania, Tennessee, Texas, Vermont, Virginia,
Washington, and Wisconsin.
- Annual and monthly U.S. prices-paid indexes for selected farm
inputs, services, supplies and repairs, interest, wage rates, rent,
and taxes. These are obtained from the NASS monthly Agricultural Prices report.
- Annual and monthly milk production per cow, obtained from the
NASS monthly Milk Production report.
The variables used in the model are:
- $ARMS = Weighted-average national milk costs of production
developed from the most recent ARMS of milk producers, currently
2010.
- $NASSINDX = Ratio of annual and monthly U.S. prices paid
indexes for selected inputs from the NASS monthly Agricultural Prices report. For
example, the index for April 2011 concentrates equals the April
2011 U.S. index for prices paid for concentrates divided by the
average 2010 U.S. index for prices paid for concentrates. This
index is used to account for monthly price variation in farm
inputs.
- $NASSMILK = Ratio of annual and monthly milk production per cow
on a daily average basis from the NASS monthly Milk Production report. For
example, the index for April 2011 milk production equals the April
2011 milk production per cow on a daily average basis divided by
the average 2010 milk production per cow on a daily average basis.
This index is used to reflect monthly variation in milk
production due to seasonal changes. Since the milk production cost
estimates are expressed per hundredweight of milk production, this
index is used to update the denominator of the ratio. Therefore,
(1/$NASSMILK) is used to update the cost items.
Seasonal variation in cow productivity can be a major source of
month-to-month changes in production costs. Milk cows produce less
during hot summer months despite using about the same level of
inputs. This seasonal variation causes costs per unit to increase
during the summer even if input prices are unchanged.
Equations for individual components of the model are:
Operating costs:
Feed -
Purchased feed = $ARMSPurchased feed
* $NASSINDXConcentrates * (1/$NASSMILK)
Homegrown harvested feed =
$ARMSHomegrown harvested feed * $NASSINDXHay and forages *
(1/$NASSMILK)
Grazed feed = $ARMSGrazed feed *
$NASSINDXHay and forages * (1/$NASSMILK)
Other operating costs:
Veterinary and medicine =
$ARMSVeterinary and medicine * $NASSINDXOther farm services *
(1/$NASSMILK)
Bedding and litter = $ARMSBedding
and litter * $NASSINDXFarm supplies * (1/$NASSMILK)
Marketing = $ARMSMarketing *
$NASSINDXOther farm services
Custom services = $ARMSCustom
services * $NASSINDXCustom rates * (1/$NASSMILK)
Fuel, lube, and electricity =
$ARMSFuel, lube, and electricity * $NASSINDXFuels *
(1/$NASSMILK)
Repairs = $ARMSRepairs *
$NASSINDXFarm repairs * (1/$NASSMILK)
Other operating costs = $ARMSOther
operating costs * $NASSINDXOther farm services * (1/$NASSMILK)
Interest on operating capital =
$ARMSInterest on operating capital * $NASSINDXInterest *
(1/$NASSMILK)
Allocated overhead:
Hired labor = $ARMSHired labor *
$NASSINDXWage rates * (1/$NASSMILK)
Opportunity cost of unpaid labor =
$ARMSOpportunity cost of unpaid labor * $NASSINDXWage rates *
(1/$NASSMILK)
Capital recovery of machinery and
equipment = $ARMSCapital recovery of machinery and equipment *
$NASSINDXFarm machinery * (1/$NASSMILK)
Opportunity cost of land (rental
rate) = $ARMSOpportunity cost of land (rental rate) *
$NASSINDXRent* (1/$NASSMILK)
Taxes and insurance = $ARMSTaxes and
insurance * $NASSINDXTaxes * (1/$NASSMILK)
General farm overhead = $ARMSGeneral
farm overhead * $NASSINDXProduction items * (1/$NASSMILK)
Note to Users
Users of the monthly milk COP estimates need to be aware that
these estimates are not as reliable as the annual estimates 
published by ERS. ERS measures COP
using the annual costs reported by farmers in the ARMS. Annual
updates of the ARMS data are based on much more rigorous procedures
than the monthly estimation process, as more detailed data are
available for the annual update process. The monthly estimates are
simply an attempt to reflect how price and production variations in
each month cause costs to vary. Also, the monthly cost estimates
become less reliable the longer the time interval between the
update month and the year in which the last ARMS was conducted.