A Look at True Feed Costs

As with anything in life, low cost doesn't necessarily equate to best value. And it's never truer than with dairy-feed rations, says Virginia Ishler, dairy specialist, Penn State University Extension.

When evaluating profitability and whole-herd success, she says, a producer must look to the value of feed inputs rather than simply the cost. Essentially, a best-cost ration, versus a least-cost ration, can help an operation maximize returns.

"Usually, the decisions based on cost alone are coupled with not giving enough thought to what specific feed components contribute to the ration, how the animal responds and the long-term implications of replacing an 'expensive' feed ingredient with a cheaper substitute," Ishler says.

Just because a herd is averaging 90-95 lb. of milk, that doesn't mean the producer has necessarily fed the best-cost ration, either.

"A producer could be spending a lot of money to get that production—to the point that it's not profitable," Ishler says. "Producers must find the balance between the best dollar value and getting the best performance from the cow. Those are the herds that are maintaining above their breakeven cost of production."
So how does a producer reach this best-cost operating level? Ishler says it all boils down to knowing your cows' nutritional needs and knowing your business.

An evolution

Looking back to a decade ago, Ishler says, feeding was focused on nutritionist-formulated rations.

"We have now found that feeding is controlled more on the management side," she says. "With computer models today, it's rather easy to plug in ingredients to set the ration. Simply put, the focus has shifted from nutritionist-formulated rations to feeding management."

Declining milk prices in recent years has also affected producers' decision making in regard to feed costs—and all farm inputs, period.

However, Ishler says, producers must be careful not to choose feed inputs based on cost alone.

More than cost

"Feeding cows is similar to conducting a financial assessment, as you should be asking: 'What is the return on my investment?'" Ishler says. "For the cow, it comes down to what is the return, in terms of milk volume and pounds of fat and protein, for the price of the feed that is fed?"

Unfortunately, some producers during difficult times make decisions based on the unit price of a particular feed, she says. This can be detrimental to an operation's production.

For this reason, Ishler says, producers must crunch the numbers to determine milk production and its value in relation to the total cost of feed, including forages and grains.

"At the end of the day, you must know your breakeven point," she says. "Then, you can determine how to adjust your cropping management to meet your specific needs. That could mean working toward a heavier forage-based ration, not purchasing as much concentrate or possibly raising more grain to reduce the need to purchase as much."

In order to know the changes to be made, you first must make a plan.

Get a plan

"That's why the focus of our Dairy $ense program at Penn State works to tie the financial side to the feeding-management side of the operation," Ishler says. "Feeders are dealing with a whole-farm system.

"As farms have evolved, we can no longer focus on just nutrition or crop production," she continues. "It is all intertwined. We have seen milk prices reach unprecedented highs and unprecedented lows. Producers can only remain sustainable by optimizing forage quality and making sure they have ample quantity, as well."

For that reason, many producers are diversifying rations to include cover crops as alternative feeds, as well as increasing usage of sorghum, sudans and other quality crops that can optimize forage inventories.

In order to know where the smartest cuts should be made within an operation, Ishler says, the most effective plan could be to bring together your nutritionist, banker and veterinarian to review your farm records.

"A producer must know both income and expenses, in order to make decisions that control expenses," she says. "If there is a bottleneck, everyone on the team can sit down together to determine the best plan. Working together, you can develop a plan to impact the bottom line in a positive way."

Sometimes, once a thorough business evaluation is complete, a producer may discover the problem rests more on the income side, rather than in the expenses.

"If there is a reproduction issue within a herd, the operation could have months when milk production is low," she says. "If you have a stale herd, with cows not getting bred back and higher days in milk, you're going to have fewer pounds of milk to ship. Those reproduction problems can really impact the income side of the equation."

Knowing your true business picture can help you make the best decisions for your operation and, ultimately, make the best-cost feed decisions for your herd.