Dairy Producer Runs Through the Feed Cost Scenarios

With grain markets continuing to march upwards, dairy producers are questioning how they will manage not only the increase to their feed bill, but a possible shortage of ingredients to feed their cows.

Earlier this week Mike North, president of ever.ag, was on AgDay talking about the struggle livestock producers are facing as feed costs continue to alarmingly increase. North says that there are three components to the feed discussion—price, basis and availability. “Basis must be part of the discussion,” North says. “The ‘buy it at any cost’ mentality is something to be avoided and should be filtered through the nutritionist.”

In Wisconsin, dairy Nutritionist Brian Vaassen, Midwest regional business manager for Standard Dairy Consultants, is keeping busy as dairy producers are reaching out asking his input. “I’m using ingredient decision software a lot lately to make sure ingredients are priced accordingly,” Vaassen reports. “It takes extra effort, but worth it.”

Near Worthington, Minn., dairy producer Dave Vander Kooi is constantly analyzing his feed costs while simultaneously keeping a close eye on his herd of 2,300 milk cows and 4,500 acres that he farms with his son, Joe, and daughter-in-law, Rita. While the Vander Kooi’s have corn silage, ground corn and haylage on inventory, none of their commodities are contracted. The southwest Minnesota dairy farmer keeps in communication with his supplier and is not worried about inventory being an issue, stating locally there are plenty of soybeans in storage.

Vander Kooi, who runs his dairy and farming entities separately, is constantly having conversations with his dairy nutritionist, asking about price and feed supplement comparisons. The Vander Kooi’s priced dairy feed from their farm at $4.50 for ground corn and $36/ton corn silage last fall. “We can always think of what we should of, would of, could of done differently,” Vander Kooi says.

North reports that substitutes should be considered if basis is overwhelmingly large. Vaassen agrees, stating for dairy producers it is all about the value of protein and amino acids needed at this point. “Synthetic amino acids are starting to price in as well,” Vaassen says.

With grain prices hotter than many livestock producers liking, North reports that prices could go up and fill the bunker price could be exceptionally higher than previous years.

Recently Vander Kooi calculated the what-if situation—if the dairy had to pay for $7 corn and $60/ton corn silage, his feed cost would increase to $10.50/cwt. “A cow has to milk 55 pounds just to pay her feed bill and nothing else,” Vander Kooi reports. “When feed price gets high, so does cull rate."

North says that historically this tight of a balance sheet for corn and soybeans supports much higher prices and dairy producers are well advised to establish a multiyear defense strategy.

Capitalizing on their herds’ increase in components, the Vander Kooi’s current milk price is $20/cwt. Even with subtracting $8.00/cwt for their current feed bill, they are making do. “However, if soybean meal would get to $500/ton, I don’t know if it makes sense to continue feeding it,” Vander Kooi reports. “All other supplements will cost more, too.”

Vaassen notes that it will be hard to find a broker that is willing to contract too far out. “Hay shortages could be real,” Vaassen adds. “Get hay bought and delivered now.” He says some producers are talking about ripping up first crop hay to plant corn which could force very tight hay inventories.

Vander Kooi is thankful that he has a great hay broker out of South Dakota, and he is not currently pre-paying for hay. “My broker raised his price a bit, but I’m getting good dairy quality hay delivered for $185/ton,” Vander Kooi adds.