NEWS for North Dakotans
Agriculture Communication, North Dakota State
University
7 Morrill Hall, Fargo, ND 58105-5665
April 9, 1998
Producers who can produce milk the cheapest will stay in business the longest, says North Dakota State University dairy specialist J.W. Schroeder.
"Producers who know what it costs them to produce 100 pounds of milk typically have a good handle on costs and a good guide for making management decisions," says Schroeder of NDSU's Extension Service. Calculations of feed costs should include both purchased feeds and feeds produced on the farm, he notes.
In proceedings from a recent Dairy Management Institute meeting, farm business management specialists suggested that if purchased feed accounts for less than $3.50 of the cost of producing a hundredweight of milk, producers are doing a good job of purchasing feed at bargain rates. From $3.50- 4.50 per hundredweight of milk, producers need to be more cautious. Feed costs greater than $4.50 indicate an immediate need to review feed purchases and management with an eye toward significantly cutting costs.
For a simple way to calculate feed costs, look to your income tax return, Schroeder advises. Take line 18 from your 1997 Schedule F and divide it by the number of hundred weights of milk actually sold (not DHI average). Line 18 should include the amount spent on purchased feed for replacements, dry cows, and lactating cows. Subtract any feed purchased for beef cows. For example: $100,000 in purchased feed divided by 26,250 hundredweights sold equals $3.81.
For total feed costs, look for costs under $6.00 per hundredweight and be wary of costs between $6 and $8. Total feed costs greater than $8 are a warning sign, Schroeder says. To calculate total feed cost, add purchased feed and home-produced forage costs. "For home-grown feeds, many use their cost of production, which will reflect variations in yield, plus an allowance for storage and feeding losses," he says. However, using market value of home-grown feeds, as if you had to buy them, is a better reflection of dairy enterprise profitability. The cost-of-production approach reflects whole-farm profitability.
An example of calculating total feed costs: $181,000 total feed cost divided by 26,250 hundredweights of milk sold equals $6.90.
"If your costs fall into the warning category in either purchased or total feed cost, evaluate your situation and determine why costs are so high," Schroeder says. "Remember that knowing your costs of production is key to staying profitable and staying in business."
Help in evaluating feed costs is available through your county extension office or an area farm business management representative.
###
Source: J.W. Schroeder (701) 231-7663
Editor: Tom Jirik (701) 231-9629