Dairy Sense: Dealing with High Feed Costs

 

 

When producers are struggling with inadequate cash flow, milk price typically gets the blame. However, it is never about milk price alone, but the milk income, which is impacted by milk production. The other price factoring into the equation is feed cost because it is all about the margin. Income over feed cost (IOFC) per cow provides the metric on the cash required to pay all the farm’s expenses minus the lactating cow feed costs. Unfortunately, Pennsylvania tends to have high feed costs relative to other states, which makes achieving a competitive IOFC challenging.

 

Each month Penn State Extension releases milk and alfalfa hay prices for the states reporting both through the USDA National Agricultural Statistics Service (Table 1). Regardless of the year Pennsylvania generally has the highest or one of the highest hay prices compared to the other states. Pennsylvania usually exceeds other states in their All-Milk Price. The challenge is the hay price is so much higher than other states that it erodes any benefit from a slightly higher milk price. This is significant when producers have an imbalance of acreage to animal numbers or weather conditions have negatively impacted inventory. This results in purchasing additional forages, which can quickly increase feed costs and negatively affect cash flow.

 

The Extension Dairy Business Management Team has been collecting and analyzing financial data for over a decade. Recently, in addition to the whole farm and the dairy enterprise, the cropping and heifer programs have been dissected. The difference between the highly profitable herds and least profitable herds is not only insufficient milk income, but inefficiency in the costs to raise heifers and home-raised feeds. Being at the mercy of Pennsylvania’s high hay costs puts dairy operations at a disadvantage compared to their neighbors and other states.

 

Producers and consultants are seeing the value of drilling down into the various enterprises on dairies. The best approach to solving a problem is knowing if there is a problem, how bad it is, and assessing if the implemented corrections are working. It does take time to break a dairy into the various enterprises, but once that first step is completed the future data collection process is much simpler.

 

The main culprit in the cropping enterprise on dairy operations is consistently low yield. The input costs for home-raised feeds are often the same if yields are 10 tons per acre or 20 tons per acre. In some cases, land rent and/or custom hire expenses are excessive for the forage or grain being produced. Drilling down to find the root cause and comparing against cohorts can help develop a feasible strategy.

 

For many of the heifer enterprises evaluated, extremely high feed costs rise to the top as the problem area. This can be a result of high purchased feed costs because of inadequate forage inventory. This can also be coupled with poor reproductive performance that results in age at first calving being too high. Feeding heifers several months beyond 22 to 24 months of age can quickly add up and negatively impact cash flow.

 

There is rarely a cookie cutter solution to solving cash flow problems. Beginning the end of 2020 and projecting forward in 2021, feed costs are going to be a risk factor to profitability. Now is the time to examine the farm’s actual numbers for 2020 and determine what changes might be necessary for 2021. Since weather is always an unknown entity, having a plan A and B is a good strategy.

 

1Agriculture Prices, USDA NASS. There are 19 states that report both milk and alfalfa hay prices monthly. The states are AZ, CA, CO, IA, IL, ID, KS, MI, MN, NM, NY, OH, OR, PA, SD, TX, UT, WA, and WI.

 

 

Monitoring must include an economic component to determine if a management strategy is working or not. For the lactating cows, income over feed cost is a good way to check that feed costs are in line for the level of milk production. Starting with July 2014’s milk price, income over feed cost 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, 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.