While the futures market is bullish for milk prices and keeping up with grain prices, non-feed costs are likely to limit profitability on dairy farms in the coming year, an economist says.

Futures prices on Class III milk for the next 12 months are about $22 per hundredweight, and the margin between milk prices and feed costs is projected at more than $11.50 a hundredweight.

Milk and feed prices are the two biggest factors in driving profitability. And on that basis, it looks like margins are going to be favorable, said Andy Novakovic, professor of agricultural economics emeritus at Cornell University.

“But the big thing this year that’s different from our common everyday assumption is that non-feed factors are moving also,” he said in the latest “Dairy Livestream” webcast.

Those always move a little but generally not enough to drive the profitability factor. But fertilizer and other input costs and interest rates on operating debt and capital improvements are all more expensive than they used to be, he said.

“So to me, that’s a little bit harder to predict … we don’t have forward markets on all that stuff. And so to me, that could be a real restraint,” he said.

It’s probably going to be one of those years where guys who grow all or a big chunk of their feed are going to be in better shape than guys who purchase feed. But it will depend on what happens with all the crazy weather that’s probably associated with climate change, he said.

“Those are pretty big factors that are going to come into play here as well,” he said.

As for milk production, dairy producers will have a tendency to focus first on the milk price and then take a look at how badly costs are eating up that milk price, said Mark Stephenson, director of the Center for Dairy Profitability at the University of Wisconsin.

“It’s significant this year, but that milk price is alluring. It’s going to be something you want to grab as much of as you can,” he said.

That said, inflation and non-feed cost inflation is real, he said.

He thinks margins will be positive, depending on the amount of feed farmers are growing themselves. But even the inputs for growing feed are very high this year, he said.

“We’ll have to see how it plays out, but I think we’re going to produce more milk,” he said.

Phil Plourd, president of Blimling and Associates, said he’s hearing credible talk of cost of production at about $21 per hundredweight for producers in the West buying feed. That’s a big number, but milk prices look like they’re going to be $22 to $23 per hundredweight, he said.

“So it looks like we’re covering the cost,” he said.

But in some places, producers are having trouble getting dry distillers grains because ethanol plants aren’t running as hard as they were. For those in the West buying feed, transportation costs are up sharply, he said.

“I think that the true costs are definitely higher than some of the published indices would suggest,” he said.

He still thinks dairy farmers are going to make money, but it is very bizarre times on the cost side, he said.