DairyProfit Update for Sept. 26, 2012
Higher feed prices pushed U.S. average milk production costs to another record high in August 2012, according to USDA’s monthly Milk Cost of Production estimates. Cost estimates are based on total farm costs per hundredweight of milk sold.
The preliminary August 2012 average total cost was $28.04/cwt., up $1.10 from July 2012, and $4.03/cwt. more than August 2011. The January-August 2012 average is $24.78/cwt., up $2.14 from the same period in 2011.
Purchased ($9.56/cwt.) and homegrown ($6.53/cwt.) feed costs were up 92¢ and 6¢, respectively, from July, and up $2.99 and 48¢, respectively, from August 2011. Feed represented about 58% of total costs. At $13.61/cwt., 2012 year-to-date average feed costs are up $1.94/cwt. from the same period in 2011.
Fuel and energy costs were higher, and combined with feed costs, pushed total operating costs up $1.04 from last month and $3.49 more than August 2011. Year-to-date total average operating costs, at $16.73/cwt., are up $1.93 from the same period in 2011.
Total overhead costs, including labor, were virtually unchanged from July, but up 54¢/cwt. from August 2011. Year-to-date average total overhead costs, at $8.05/cwt., are up 21¢ from the same period in 2011.
Dairy farmers who previously were forced to sell livestock due to drought have an extended period of time in which to replace the livestock and defer tax on any gains from the forced sales, the Internal Revenue Service (IRS) announced Sept. 25.
The one-year extension of the replacement period generally applies to capital gains realized by eligible farmers and ranchers on sales of livestock held for draft, dairy or breeding purposes due to drought. Sales of other livestock, such as those raised for slaughter or held for sporting purposes, and poultry are not eligible.
To qualify, the livestock generally must be replaced within a four-year period. The IRS is authorized to extend this period if the drought continues.
The IRS is providing this relief to any farm located in a county, parish, city or district, listed as suffering exceptional, extreme or severe drought conditions by the National Drought Mitigation Center, during any weekly period between Sept. 1, 2011, and Aug. 31, 2012. All or part of 43 states are listed. Any county contiguous to a county listed by the NDMC also qualifies for this relief.
Details on this relief, including a list of NDMC-designated counties, are available in IRS Notice 2012-62, posted on IRS.gov. Details on reporting drought sales and other farm-related tax issues can be found in Publication 225, Farmer's Tax Guide, also available on the IRS web site.
The International Dairy Foods Association said Congressional Research Service (CRS) analysis of proposed dairy programs provides useful information for legislators as they continue work on the 2012 Farm Bill this fall. However, “You can read that report until the proverbial cows come home and you will not find anywhere that it concludes that the Dairy Security Act is the best approach for dairy farmers, as was falsely claimed by the National Milk Producers Federation,” said Jerry Slominski, IDFA senior vice president of legislative and economic affairs.
The CRS report, "Dairy Policy Proposals in the 2012 Farm Bill," provides a detailed explanation of existing dairy programs, as well as an explanation of two competing proposals to replace those programs. The Dairy Security Act (DSA) offers a new margin insurance program that would require participants also to sign up for a new milk supply management program called the Dairy Market Stabilization Program (DMSP). An alternative approach, authored by Representatives Bob Goodlatte (R-Va.) and David Scott (D-Ga.), would provide similar margin insurance coverage without the controversial plan to periodically limit milk production.