Keep Purchased Feed Costs in Perspective

Feeding cows is very similar to conducting a financial assessment in respect to "What is the return on investment?" For the cow it comes down to what is the return on milk volume and pounds of fat and protein for the price of feed fed. The approach taken by producers during difficult times is to make decisions based on the unit price of a particular feed. Usually this is coupled with not giving thought on what the feed contributes to the ration, how the animal responds, and the long term implications of replacing an "expensive" feed ingredient with a cheaper substitute. This strategy has led many nutritionists to avoid the least cost ration scenario and focus on the best cost ration because optimum performance is rarely achieved on the least cost approach.

Production Perspective

There are two common scenarios observed on dairy operations. The first is where every ingredient and additive sold is incorporated into the ration. If the claims of the additives and formulation strategies were met then herds should easily average over 100 pounds of milk with no health problems. The other scenario is as soon as the milk price goes south critical ingredients are getting pulled out of the diet many times to the determent to production.

Cows thrive on consistency and it is easy to lose production and much harder to gain it back. If the ration program is working think twice before making a major change. On the reverse side, if the program is not working than don't expect a different outcome by keeping it the same.

Dairy $ense uses the average ration programs for the Penn State dairy herd from 2008 through 2014 for the respective months. The same ingredients were used over that time period and adjusted based on forage quality. Those rations are used to calculate income over feed cost monthly starting in July 2014. Using market prices, Figure 1 shows the price per ton for corn grain, liquid sugar, canola meal, roasted soybeans and the milk cow TMR starting July 2014.

The two ingredients with the highest per unit price per ton are canola meal and roasted soybeans. On an as fed basis their total inclusion level in the diet ranges from 7.0 to 7.5 pounds over a 12 month period. Forage makes up 63% of the diet. The figure shows there is very little correlation with the price per ton for the TMR and the unit cost on any of the ingredients listed. The price per pound of dry matter for the TMR averaged 0.104, 0.111, and 0.099 for 2014, 2015 and 2016 to date, respectively.

Cows are consistent in their milk production ranging from 80 to 85 pounds per cow throughout the years. This is an example of where the ingredients click with the forages and substituting out the soybeans or the canola meal when their cost was high would probably have resulted in lost milk income.

The best approach still comes down to the total package and the combination of ingredients and how cows respond. The Penn State dairy business management team monitors the percent of milk income going towards feed costs. This is the benchmark used to compare against other herds to examine if their total feed costs (home raised and purchased) are in line with milk production. Herds with good cost control had the following milk income going towards feed for 2014, 2015 and 2016 - 30%, 44% and 43% (to date) respectively. Herds that exceeded these benchmarks missed opportunities for improved cash flow. Herds with a higher percent income going towards feed usually fall into one of three categories: limited forage inventory and purchased feed (forage and/or grains) is excessive to compensate; forage quality is poor and purchased feed is needed to balance energy and/or protein; purchased feed contains a lot of additives and extras that are not justified for the current level of production.

Knowing a farm's cost of production and evaluating milk income and expenses is the only way to know what is happening on the farm and what changes should be made.

Action plan for incorporating a new product or management practice

Goals

Make decisions based off of the farm's cash flow plan regarding cropping strategies, forage and feed inventories and breakeven income over feed costs.

Steps

  • Step 1:

    Develop a cash flow plan that encompasses recording the rations for all animal groups and their associated purchased feed costs.
  • Step 2:

    Develop the crop enterprise budget to evaluate the unit cost to produce all home raised feeds. Use those values to calculate the true feed cost per animal.
  • Step 3:

    Calculate the percent milk income that is going towards the lactating cow diet.
  • Step 4:

    Meet with the farm's advisory team to evaluate the farm's cash flow plan and determine if there are any bottlenecks to production or feed costs.

Economic perspective

Monitoring must include an economic component to determine if a management strategy is working or not. For the lactating cows income over feed costs is a good way to check that feed costs are in line for the level of milk production. Starting with July's milk price, income over feed costs was calculated using average intake and production for the last six years from the Penn State dairy herd. The ration contained 63% forage consisting of corn silage, haylage and hay. The concentrate portion included corn grain, candy meal, sugar, canola meal, roasted soybeans, Optigen (Alltech product) and a mineral vitamin mix. All market prices were used.

Also included are the feed costs for dry cows, springing heifers, pregnant heifers and growing heifers. The rations reflect what has been fed to these animal groups at the Penn State dairy herd. All market prices were used.

Income over feed cost using standardized rations and production data from the Penn State dairy herd.

Nov IOFC
Note: November's Penn State milk price: $17.22/cwt; feed cost/cow: $6.29; average milk production: 83 lbs.

Feed cost/non-lactating animal/day.

Nov feedcost

 
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