The gross milk price (Pmilk) can be taken from your monthly milk check. To figure the daily average milk production, take the total pounds of milk shipped (from your milk check) and divide it by the number of days in the month, then divide by the number of lactating cows.
Essentially, the gross milk price is being converted from dollars per cwt to dollars per pound of milk produced and then the cost of producing that milk is subtracted.
For example, if your gross milk price is $18.50, your daily average milk production is 70 pounds and your daily feed cost is $5.15, the formula would look like this: $18.50 x 70/100 - $5.15 = $7.80/cow/day IOFC. In this example, if your IOFC breakeven is $9, this means you will probably have trouble paying bills and won’t be able to save cash.
Dry cow vs. lactating cow
Only include lactating cows in your calculation. Dry cows and heifers should be excluded from all calculations because it’s only the lactating cows that provide the income.
Account for homegrown forages
Your ration likely consists of both homegrown and purchased feeds. Therefore, it’s important to calculate the real cost of home-grown forages.
The cost of home-grown forages should include the cost of the seed, fertilizer, crop chemicals, and custom harvesting. The value of home-grown forages is most important when you are planning a cash flow and wish to determine your breakeven IOFC. While this is not the full cost of producing the grain or forage, the overhead cost must be covered by the IOFC you receive on the farm. When you want to benchmark your herd with other dairy farms, use the market price for that forage
Whether you choose to use your own cost calculation for homegrown forages or the market price, it is important the method used be consistent each month.
Actual pounds fed to the lactating herd are needed. Do not exclude feed refusals. There is a cost to feed the cow whether she consumes the feed or not, notes Ishler.
Feed prices for all ingredients are also needed. This includes forages, grain mixes and commodities. If you forward-contract, use the contracted price instead of the actual market price.
When gathering figures to calculate, accuracy is important. “If you make too many assumptions, it is harder to rely on IOFC as a decision-making tool,” notes Jones.
Calculate and recalculate
Calculating IOFC one time is not meaningful, says Ishler. Ideally IOFC should be calculated every month if not more frequently.