Feed Costs

There are two ways producers can manage feed efficiency. The first is to increase milk production at the same rate of feed. The other is to decrease feed intake and keep milk production at the same level. However, it’s important for producers to understand: While feed efficiency is an important metric to measure and monitor regularly, profitability should also be considered. High feed efficiency does not always equal high profitability. If you’re spending more on feed to increase milk production, you may not see profit.

When starting the audit, take each ingredient and look at it through a magnifying glass. Be careful not to forget that many feed additives have become key to maintaining profitability on the dairy, so these audits are not just about lowering costs. Auditing a ration is more about ensuring a balance between price and performance. Here is the step-by-step audit process.

With livestock feed prices on the rise, many farmers will be looking for ways to reduce input costs. While there may be opportunities to trim unnecessary spending, University of Illinois’ Mike Hutjens cautioned farms against making cuts that will impact milk production.

Total mixed ration (TMR) variability: We know it exists, but evaluating the true extent and impact of this phenomenon can be a daunting task. Cows love consistency, so when looking at inherent TMR variability, we may often wonder about the impact on animal performance.

The 2021 climate of high feed costs and tepid milk prices are creating a tenuous financial scenario for most U.S. dairy farms. Penn State Dairy Extension specialist Virginia Ishler said current conditions are mimicking those of 2012, when feed prices soared to unprecedented highs. “Using farm financial data from 2020 and projecting costs into 2021 and beyond, most operations will be extremely vulnerable to maintaining a positive cash flow, especially if high feed prices continue,” she stated in a Penn State Dairy Extension bulletin.

Because feed costs can represent 50 percent of the total cost to produce milk, dairy farmers are trying to reduce feed costs. However, with the wrong feed choices, farmers could save 10 cents a day while losing 50 cents of income. Several “Golden Rules” are listed below; do not break these rules.

Increasing ingredient costs have wreaked havoc across the dairy industry, leading to elevated ration costs not seen in many years. Feed costs per pound of dry matter (DM) are rising as much as 20% or more as corn and soybean meal prices climb, minimizing farmers’ profit margins.

The average cost to produce milk has climbed substantially so far this year. In our conversations, we have been hard-pressed to find anything — services or products — that are cheaper this year than they were at this time in 2020. Based on our straw poll of producers, average wages are up 10% to 15% on U.S. dairy farms compared to levels a year-ago. The costs of parts has jumped by 20% or more and fuel prices are still trending higher, after already climbing by more than 35%. While the Federal Reserve debates inflation, it’s clear it has already arrived at dairy farms. And I haven’t yet mentioned feed costs. In the first four months of 2021, corn prices rose by 32% year-over-year and soybean prices jumped by 48% versus 2020 levels. Based on my estimates, total feed costs were more than $2 per hundredweight (cwt.) higher January through April than in the same period in 2020.

The feed costs for dry cows and heifers can influence the cash flow as much as the lactating cow. This is particularly true if forage inventories are lacking. The feed costs per nonlactating animal can be very close to what the market is reflecting. This is due to feeding both purchased forage and grain. Examining feeding strategies for all animal groups is warranted considering the continued high feed costs in 2021.

Markets always have a tendency to fall faster than they increase. That was very evident again recently as Class III futures plummeted over a three-day period. Cheese prices fell as buyer’s needs for fresh cheese were filled temporarily. A price void developed under the market as buyers leap frogged over each other trying to get their hands on available loads before price moved too much higher. This is similar to what takes place at a farm auction when a few people want something and are willing to continue to run the price up. The daily spot market is a price auction with buyers and sellers doing a similar thing, but for a different reason. Even though the spot market trades for a limited time each day and sometimes can move more than the underlying fundamentals for a period of time, it is an accurate representation of supply and demand.

A lot of volatility has been occurring in the commodity markets during the last couple of months. While priced at about $4 per bushel at the beginning of November, today’s price in the futures market for corn grain for March 2021 is surpassing $5 per bushel (25% more expensive). Similarly, while priced at about $360 per ton at the beginning of November, today’s price in the futures market for soybean meal for March 2021 is about $424 per ton (roughly 18% more expensive).