Methods

ERS estimates milk production costs using data from the Agricultural Resource Management Survey (ARMS) (dairy version) conducted every five to six years, and adjusts these cost estimates in the non-survey years to reflect changes in prices for the target period.  The following section provides the details for calculating these estimates in non-survey years. 

Data used to produce the national monthly milk cost estimates include:

  • USDA's most recent ARMS of dairy operations, currently 2016.  The most recent annual data includes 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. Observations from all states are used to develop national and regional estimates and estimates by size.  State-level estimates are developed for States where there are sufficient observations. 
  • For non-survey years, annual U.S. prices-paid indexes produced by USDA-National Agricultural Statistics Service are used to update expenses for farm inputs, services, supplies and repairs, interest, wage rates, rent, and taxes.

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 2016.
  • $NASSINDX = Ratio of annual U.S. prices paid indexes for selected inputs from the NASS Quick Stats reports. For example, the index for 2019 concentrates equals the 2019 U.S. index for prices paid for concentrates divided by the average 2016 U.S. index for prices paid for concentrates.

Equations for individual components of the model are:

 

Gross Value of Production:

Milk sold = $ARMSMilksold * $NASSINDXmilk price received

Cattle = $ARMSDairy animal sales * $NASSINDXBeef cow price received

Other income = $ARMSOtherInc * $NASSINDXfertilizer totals

Operating costs:

Feed -

Purchased feed = $ARMSPurchased feed * $NASSINDXConcentrates

Homegrown harvested feed = $ARMSHomegrown harvested feed * $NASSINDXHay and forages

Grazed feed = $ARMSGrazed feed * $NASSINDXHay and forages

Other operating costs:

Veterinary and medicine = $ARMSVeterinary and medicine * $NASSINDXAg services

Bedding and litter = $ARMSBedding and litter * $NASSINDXAg services

Marketing = $ARMSMarketing * $NASSINDXAg services

Custom services = $ARMSCustom services * $NASSINDXAg services

Fuel, lube, and electricity = $ARMSFuel, lube, and electricity * $NASSINDXFuels

Repairs = $ARMSRepairs * $NASSINDXFarm repairs

  • $NASSINDXFarm repairs = sum (((2019 Building materials index / 2016 Building  materials index) * 0.5), ((2019 machinery total index / 2016 machinery total index) * 0.5))

Other operating costs = $ARMSOther operating costs * $NASSINDXAg services

Interest on operating capital = (sum current year operating costs * (1 + ($NASSINDXShort Term Interest / 100 )) ^ 0.5) - current year operating costs

Allocated overhead:

Hired labor = $ARMSHired labor * $NASSINDXWage rates

Opportunity cost of unpaid labor = $ARMSOpportunity cost of unpaid labor * $NASSINDXNon-farm wage

Capital recovery of machinery and equipment = $ARMSCapital recovery of machinery and equipment * $NASSINDXFarm machinery repairs

  • $NASSINDXFarm repairs = sum (((2019 Building materials index / 2016 Building  materials index) * 0.5), ((2019 machinery total index / 2016 machinery total index) * 0.5))

Opportunity cost of land (rental rate) = $ARMSOpportunity cost of land (rental rate) * $NASSINDXRent

Taxes and insurance = $ARMSTaxes and insurance * $NASSINDXAg services

General farm overhead = $ARMSGeneral farm overhead * $NASSINDXSupplies and repairs

Last updated: Monday, August 03, 2020

For more information, contact: Jeffrey Gillespie