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Economic Returns to Holstein and Jersey Herds Under Multiple Component Pricing

¹ Department of Agricultural Economics and Rural Sociology, and
² Department of Dairy and Animal Science, The Pennsylvania State University, University Park, 16802

Corresponding author: Kenneth W. Bailey; e-mail: baileyk{at}psu.edu.

This study analyzed component data from herds participating in the Mideast Federal Milk Marketing Order from 2000 through 2002, and its implications for herd profitability. A monthly simulation model was developed to evaluate the economic returns for a representative Holstein and Jersey herd in Pennsylvania under multiple component pricing. Component levels were highly seasonal and variable from farm to farm. A third of the herds during the course of a year realized a 1- to 3-mo temporary reduction in milk fat or protein greater than one standard deviation. Consistently producing milk fat and protein one standard deviation below the mean reduced the Class III value by $0.82/cwt (100 pounds), or 7.09%. The simulation model indicated that a herd of 100 Holstein cows generated $31,221 more income over feed costs (IOFC) a year than a herd of 100 Jersey cows. Although Jersey milk had greater gross value than Holstein milk due to higher component levels, total volume of milk and components produced by Holsteins offset this difference. Simulation results confirm that increasing milk fat and protein percentages by one standard deviation increased IOFC 7.7% for Holsteins and 9.2% for Jerseys relative to the baseline IOFC, with similar losses for component reductions. Increasing milk yield by one standard deviation increased IOFC by 19.6% for Holsteins and 23.9% for Jerseys relative to the baseline IOFC, again with similar losses for reductions in milk production. In all of the scenarios analyzed, the most important factor affecting IOFC was total amount of milk fat and protein produced, not the component percentage levels.

Key Words: milk composition • multiple component pricing

Abbreviation key: cwt = 100 pounds, DRMS = Dairy Records Management System, GR = gross revenue, IOFC = income over feed costs, PPD = producer price differential.

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