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August 11, 2006 Minimizing Feed Costs May Not Maximize Profits
No one knows better than dairy farmers the cost of doing business. In these times of high feed costs and low milk prices, and when both situations are exacerbated by the escalating costs of transportation, dairy producers work overtime to push a pencil in an effort to find the best way to hold profits. Drought has only complicated the situation. Feed is well-known to represent the largest expense to dairy businesses. Therefore, controlling feed expenses is critical to a profitable operation. The two most common feed efficiency indicators are income over feed cost and feed cost per hundredweight (cwt). Income over feed cost (IOFC) arguably is the most important measure of the economic efficiency of feeding the dairy herd. For this equation, the variables are feed costs, milk production and milk price. Simply put, you subtract the feed cost per cow per day from the milk income per cow per day. When using a benchmark of $13.50/cwt of milk, an IOFC of $6 or higher is a reasonable goal. Feed cost per cwt is a measure more commonly used. This figure is easier to come by as it generally shows up on the ration sheet. Monitoring feed cost per cwt provides a standardized figure to compare the effectiveness of feed cost control. A feed cost per cwt of milk less than $5 is considered good. Minimizing feed costs does not necessarily maximize profits. Many have pondered the question, “Am I just swapping nickels?” with respect to chasing production by increasing feed levels. Of course, the answer is, “It depends.” The goal is to feed higher levels of feed only to the point that it continues to generate additional income. Here is an example of the difference between maximizing IOFC and minimizing feed cost per cwt of milk:
Granted, producers are receiving $10 to $11 per cwt of milk in today’s market. Nonetheless, the comparison proves a point. Although herd B has a lower feed cost/cwt of milk, the owners are realizing 45 cents less IOFC/cow/day than herd A. On a 100-cow dairy, that would be a gain of $16,425 during one year’s time. So while we all get tired of records, especially records that remind us of the economic dire straits of agriculture, they do prove a point. Good records are paramount in good and bad economic times. Put a pencil to those cuts before you implement a costly strategy. ### Source:
J.W. Schroeder, (701) 231-7663, jschroed@ndsuext.nodak.edu
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Market Advisor: |
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North Dakota State University |
