The document discusses the milk-cost ratio, an indicator used by the National Association of Danish Dairy Farmers to measure profitability in milk production. The milk-cost ratio compares the price received for milk to the costs of feed, shelter, milking equipment and interest. A ratio between 2.0-2.25 generally indicates profitability for Danish dairy farmers. Graphs and data presented track the milk-cost ratio and farm earnings in Denmark and Europe over time. The document aims to provide transparency around production costs and competitiveness for dairy farmers.

1. Milk-cost ratio
- an indicator of
profitability in milk
production
The National
Association of
Danish Dairy
Farmers

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. 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. ‘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. 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. 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. 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. 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. 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. 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. 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. FAQ
Comparison with one’s own farm
The graphs cannot be directly
compared to the production of a
single dairy farm.

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.

14. Need more
information?
Please contact Landsforeningen
af Danske Mælkeproducenter
(The National Association
of Danish Dairy Farmers)
www.maelkeproducenter.dk
ldm@maelkeproducenter.dk
+45 70 23 11 14
Thank you for your attention…