Expensive feed or custom feed: a cost comparison

A lack of moisture has curtailed pasture and hay production in many areas of Alberta this year. Dean Dyck, farm business management specialist at the Alberta Ag Info Centre, compares buying feed for cows to moving them to a custom operator to feed and care for those animals.
“Feed and hay prices have risen dramatically from a year ago. Producers are faced with either buying expensive feed or moving their livestock to feed if they want to keep ownership and equity in their animals. Choosing an option depends on the economics of each alternative,” explains Dyck.

The first step is to calculate the cost of putting feed into the feed bunk. This is the sum of the cost to purchase the feed, along with shipping costs, yardage charge on the farm, the opportunity cost of labour for feeding the animals, and shrink and waste.

“For example, if each cow needs about 35 pounds of hay per day to maintain her, it will take about 7,500 lb. or approximately 3.75 tons of hay over 215 days,” says Dyck. “Feeding days are suggested to be longer this coming winter due to a lack of fall grazing opportunities and to give pastures time to recover from lack of moisture. If good quality hay costs about $200 per ton, the total cost of the hay will be $750 per animal. Shipping charges to transport the hay to the farm need to be added. According to Alberta Agriculture and Forestry’s custom rate survey, freight charges are approximately $6 per loaded mile. If hay is picked up 100 miles away, the cost will be $600 per load. Assuming 18 tons per load, the freight cost is $33 per ton or $123 per animal for the 215 days.”

Yardage charges on the farm include the cost of operating equipment, corral cleaning, utilities, and wear and tear on facilities. Using approximately $0.70 per head per day for “at home” yardage, the total cost of hay delivered to the farm is $1,026 per animal for 215 days.

“This example assumes that there is less than 15 to 20 per cent of wasted hay per day and that the farmer has no opportunity cost for labour,” says Dyck. “That is, if the owner can use the labour to generate alternative income, then the opportunity cost of not feeding cattle must be added to the cost of purchasing and hauling feed.”

The second step is to calculate the cost of moving the animals to a custom operator and pay for the feed and care there. This is the sum of shipping the animals to and from the lot, along with the cost of feed at the facility, and the yardage charge by the feeder to care and feed the animals.

“If the price of hay is the same at the custom feeder, the cost of feed would be $750 per animal,” adds Dyck. “However, the cost of freight for moving the cattle to and from the feed yard has to be factored in. The average custom rate for hauling cattle is about $5.50 per loaded mile with 50 cows per load. A 100 mile round trip cost will be $22 per head, making the total cost of hay and hauling $772 per head for 215 days. If the feeder charges $0.85 per head per day in yardage, the total cost will be $954 per head for 215 days, or $72 per head lower than the cost of buying feed.”

“These are just examples and you must figure your own costs including the purchase price of feed and the cost of shipping hay and cattle,” says Dyck. “Comparing the two options, if the cost of feed is the same for the producer and the custom feeder, the primary factors in making your decision are the distance and the cost to ship the hay or cattle, the yardage charge, and the amount of feed waste. If you are considering custom feeding, both parties should agree on a body condition score going into and coming out of the feed yard as well as a fairly accurate estimate of pregnancy.”

“Saving the most equity in the cows should be the primary goal,” concludes Dyck. “Evaluate your decision based on your risk-bearing ability, market outlook and distance/availability of feed or custom feeding operations. After considering all the factors, choose the best single or combination of alternatives that will give you the best change at preserving equity.”