Financial stressors experienced in the dairy industry since late 2008 have sharpened dairy producer interest in maximizing income over fed cost (IOFC.) However, much confusion exists throughout the industry as to the relationship between reducing feed cost and net revenue generated. At the end of the day the only thing that matters is whether a business generates a loss or a profit. So, when does a savings, in fact, become a sacrifice?
“We know from USDA survey data that dairy producers tend to pull back on the amount of feed offered to cows during tight economic times with the resulting reduction in milk production,” says Ken Bolton, University of Wisconsin extension dairy and livestock agent.
However, a savings or reduction in expenses doesn’t automatically translate into an increased margin; the difference between income and expenses. To do so requires income level to remain at least equal or to not decline as quickly as the reduction in cost. This is rarely the case with milk production because a decrease in the quantity or quality of feed fed almost always results in lower milk production.
Even when the result is only a 1-pound milk response per pound of feed fed, milk is typically worth two- to three-times the value of feed. Even when milk is priced at its lowest and feeds at their highest levels, milk is still worth 1.4 - 2 times that of feed. “It therefore takes a lot more feed savings to offset even a minor decline in milk production,” he says.
Another challenge in determining feeding economic outcomes is that nothing about the dairy business is static. Although a person may be able to identify the rare situation where reduced feed expenses may increase net income; cow response, feed and milk prices continue to fluctuate. Even very expensive feed additives which rarely pay except under very high milk prices have their day in the sun. So what is feasible today may be totally different tomorrow. Ongoing vigilance is needed, Bolton insists.
Source: University of Wisconsin