Do You Know Your Costs to Grow Feed?

Corn photos from MI Corn College 2014. ( Aimee Cope )

Feed costs typically are the largest expense on a dairy operation and managing those costs contribute to a dairy's ability to be profitable. These costs include purchased feed, but also the true costs to produce crops raised on the farm. Home-raised feeds vary in type, quality, and quantity, but more importantly, the cost to produce a given feedstuff is unique to each individual operation. Many farm businesses overlook planning and tracking the costs associated with home-raised feeds despite the integral relationship with profitability.

Variations in soil fertility, available acreage, equipment, storage, and labor are some of the larger factors contributing to quality and quantity of feeds produced on the farm. Finding the right balance between these two will differ for individual farms. Knowing the costs associated with the home raised feeds is an integral part of that cropping strategy. Specific steps in determining their costs is outlined in “ The Crop Costs Conversation ” (Beck, 2014). The main areas to examine are determining crop inventories, estimating direct and overhead costs, and comparing to market values. It recommended identifying crop expenses such as seed, fertilizer, and chemical for each specific crop. Keeping track of each expense as it applied to crop acres will increase the accuracy of calculating the direct costs and planning future costs based on the previous year.

The following graphs illustrate the actual costs across the past four years for three major commodities: corn silage, corn grain, and small grain silage. This represents 91 farms that participated in 2016-2019 Penn State Extension "Know Your Numbers" FINPACK© enterprise analysis program. This program assists producers with calculating their crop costs and estimating their annual breakeven costs for the dairy enterprise and whole farm. These values are accrual adjusted to account for such changes in inventory, accounts payable, and summarized within Center for Farm Financial Management’s FINBIN©program (FINBIN, 2020). Corn silage averaged $30.78/T for the past four years, but each year is unique for cost and yield (Figure 1). Corn grain followed a similar trend (Figure 2), but small grain silage has tended to be more expensive partially due to lower yields in recent years (Figure 3). According to the monthly Penn State Feed Price List (Ishler, 2020) the average market value for corn silage in the first half of 2020 was $59.95/T, corn grain was $4.43/bu., and small grain silage averaged $88.70/T. These prices are statewide averages and values fluctuate between regions. Regardless of region, average home-raised costs tend to be lower than the market value.

Figure 1. Pennsylvania Corn Silage Costs and Yields for 2016-2019 (91 dairies).

Figure 2. Pennsylvania Corn Grain Costs and Yields for 2016-2019 (58 dairies).

Figure 3. Pennsylvania Small Grain Silage Costs and Yields for 2016-2019 (75 dairies).

Determining actual costs relies heavily on monitoring yields harvested so it is known what is available for feed or sale. Small grain silages in 2019 are a good example of the importance of yield estimation. The total cost per acre of small grain silage that year averaged $287 with an average yield of 5.2 T/a, resulting in a total cost of $55.30/T. If the yield estimates were not precise and the tonnage was more like 7 T/a, the cost would have been $41/T and more in line with previous averages. Yields vary greatly between years, farms, and even within farm but across fields. Having detailed expense records by crop combined with acres harvested and yields by crop will improve the accuracy of actual home-raised feed costs.

Dairy farms have a unique combination of resources and limitations to ensure their farm is profitable. To buffer market volatility, controlling home-raised feed costs by estimating expenses, determining actual costs, and monitoring both feed quality and quantity are needed. Penn State Extension has tools and programs available to help producers and their advisors get started. The "Know Your Numbers" cash flow program is one method, and there is the newly revised CropCents mobile app . This application (available regardless of mobile or computer platform) allows producers to enter their direct crop expenses as well as partition operating expenses to all the crops produced on the farm, resulting in estimates of yields and costs per unit. Producers can determine the yields based on common units for each commodity.