Managing Feed Costs
Photo by wildeme/morguefile.com.
Milk cow feeding costs on New England dairy farms have increased by over 35 percent in a three-year period from 2010 to 2012. According to the most recent Dairy Farm Summary published by Farm Credit East, the average feed cost (accrual basis) for New England dairy farms has jumped from $5.58 per hundredweight of milk in 2010 to $6.71 in 2011 and $7.61 in 2012.
The rising costs of feedstuffs are primarily due to U.S. agriculture policy, weather conditions and worldwide currency valuations. Realistically, dairy farmers have little ability to influence any of these variables and essentially must find other ways to compensate for increasing feed costs.
Every dairy farm has little choice but to aggressively manage feed expenses. Choices in managing feed costs in this current economic environment are focused around two approaches: finding lower-cost substitutions for various ingredients, which means shopping around for feeds, and/or reformulating diets so that they will result in improved feeding efficiencies.
While there are many other costs (e.g., labor, debt, maintenance) that ultimately influence a dairy farm's profitability, feed costs, because they account for a significant portion of total operating expenses, must be managed in a class by themselves. The best way to manage feed costs is keeping track and evaluating the metric called income over feed cost (IOFC). The IOFC is simply the money left over from gross milk revenue after accounting for milk cow feed expenses. It is also a measure of feeding efficiency.
Essentially, dairy farmers should be looking to maximize IOFC at every opportunity. A high IOFC leaves more money to pay the rest of a dairy's operating expenses. A crucial part of improving IOFC is understanding that in many cases, more money has to be spent on feeding cows in order to improve milk production, and the marginal milk production that results must more than pay for the increase in the investment of feed.
A second important factor in improving IOFC is understanding that the nutritional requirements of a cow change during the course of her lactation. At the start of lactation, her energy and protein needs are quite high relative to her feed intake. While a single total mixed ration (TMR) may be convenient on many dairy farms, nearly all TMRs are formulated to fall short of meeting high production potential for the cows in early lactation.
In the average herd of milk cows, there should be an equal distribution of cows that are relatively fresh and headed for peak milk production, cows in midlactation, and cows that are in late lactation carrying a large calf. Nutrient densities - meaning the pounds of calories and the pounds of amino acids per pound of feed - change during the course of a cow's lactation as her milk production changes. No dairy farm can afford to formulate a ration that meets the nutrient needs of the high producers and also feed that same TMR or grain mix to the rest of the herd as they progress through lactation.
Even if later-lactation cows eat less dry matter, the TMR itself is formulated for a higher percentage of grains and proteins, which costs more. Midlactation diets should have less expensive ingredients and focus more on forages than on grain. This requires herds to be grouped according to milk production and stage of lactation.
Maximizing IOFC is also dependent on milk revenue, and milk revenue is tied to pounds of milk components produced per cow per day. One of the suggested benchmarks for milk components that dairy farmers should be looking at is producing a combined total of 5 to 6 pounds or more per cow per day of butterfat and milk protein. This means producing a minimum of 3 pounds of fat per cow per day and at least 2 pounds of milk protein. As an example, a cow producing 80 pounds of milk with 3.6 percent butterfat and 3.1 percent milk protein will total 5.36 pounds of components.
Average milk fat percentages below 3.5 percent and protein percentages under 3 percent in Holstein herds suggest that there are opportunities for improvement. The improvement of milk components in recent years has come from a more advanced knowledge of rumen biology, which allows for balancing various carbohydrate fractions with rumen degradable and nondegradable proteins to maximize rumen microbial growth.
Maximizing IOFC also means that cows in the herd that are not paying their way should not be there. Cows that don't generate enough revenue to cover variable feed and labor costs should be dried off or replaced. It's always tempting to overcrowd pens just to keep the cow numbers up, but more often than not, removing the poor performers will have little effect in the milk tank. Oftentimes, thinning out a group will actually increase milk production per cow, since cows can then consume more dry matter.
Every dairy farm has its own unique economies that dictate how much milk must be produced each and every day. Another benchmark that's worth considering is an IOFC of $10 per cow per day. That means there's $10 left after the feed has been paid for to take care of all the other operating costs. That has been a nearly impossible number to attain during the past few years. With a feed cost of $7.61 per hundredweight in 2012, to manage an IOFC of $10, the milk income would have to be $17.61 per hundredweight. With most dairy farms averaging about $18 per hundredweight last year, milk production per cow would have to be closing in on 100 pounds per cow per day. Obviously, there are few dairy farms that can do that.
When milk prices are low and feed prices are high, keeping an IOFC up where we'd like it to be is impossible. In recent years, an IOFC of $5 to $6 is what many dairy farms have had to settle for. Regardless of what the IOFC may wind up being from month to month or year to year, watching feed costs so as to maximize IOFC, no matter what it may be, will keep a dairy farmer in the best place possible for the current economic conditions.
The author is a dairy nutritional consultant and works for Central Connecticut Cooperative Farmers Association in Manchester, Conn.