Milk Prices, Costs of Nutrients, Margins and Comparison of Feedstuffs Prices

Mr. Alex Tebbe, Graduate Research Associate, Department of Animal Sciences, The Ohio State University

As you read this issue of The Buckeye Dairy News, you may have noticed a different author for this column. My name is Alex Tebbe and I am currently a graduate student studying dairy nutrition under Dr. Bill Weiss. I will be writing this section from this point on in light of Dr. St-Pierre’s retirement. His years of dedication to The Ohio State University and global dairy industry are irreplaceable, and we thank him for his countless contributions.

Although my insight on the dairy and ingredient markets may differ from that of Dr. St-Pierre, rest assured, the SESAME analysis of these 27 feed commodities and their respective economic prediction found in the tables below will stay the same. In effect, I leave it up to the readers to decide which category I fit under: good or ugly.

The Ugly Side: Milk Prices

In the last issue, the price of Class III closed at $15.33/cwt for November and was expected to fall even farther to $14.68/cwt in December and January. Unfortunately, the December and January futures closed even lower than expected to $14.44/cwt, and $14.47/cwt respectively, and really go down in February to $13.64/cwt. The Class IV futures prices are above the Class III for the next couple of months, then they drop into the $14.00 to 14.50/cwt range. Although the price for corn is still relative low at $3.75/bu, the price is on the rise since the first of the year, further confounding low milk prices. In effect, corn and its byproducts may have contributed to the doubled appraisal for NE_L; (8.4¢/Mcal) in comparison to November (4.9¢/Mcal).
 
The Good Side: Nutrient Prices

Feed prices have continued to stay low through the tail end of 2015 as we enter into the New Year. On an even better note, 48% CP soybean meal has fallen over $20/ton since the last issue and is expected to decline even more before spring. This decrease, however, does not outweigh the slight bump in corn prices nor lower milk price.

As in previous issues, these feed ingredients were appraised using the software program SESAME™ developed by Dr. St-Pierre at Ohio State to price the important nutrients in dairy rations, to estimate break-even prices of all commodities traded in Ohio, and to identify feedstuffs that currently are significantly underpriced as of January 26, 2015. Price estimates of net energy lactation (NE_L, $/Mcal), metabolizable protein (MP, $/lb – MP is the sum of the digestible microbial protein and digestible rumen-undegradable protein of a feed), non-effective NDF (ne-NDF, $/lb), and effective NDF (e-NDF, $/lb) are reported in Table 1.  For MP, its current price ($0.437/lb) has nearly split the difference from the last issue ($0.556/lb) and the 6-year average ($0.28/lb).  This is good in counteracting the jump of NE_L from last month mentioned previously. However, the jump is still lower compared to its historical 6-year average of about 10¢/Mcal, NE_L.   The cost of ne-NDF has also went down substantially from -1.7¢/lb to -7¢/lb, making it an even larger market discount (i.e., feeds with a significant content of non-effective NDF are priced at a discount). Meanwhile, unit costs of e-NDF are also at over 4 times their 6-year average, being priced at 13.3¢/lb compared to the 6-year average (3.3¢/lb).  Fortunately, a dairy cow requires only 10 to 11 lb of effective NDF, so the daily cost of providing this nutrient is only about $1.40/cow/day (i.e., 10.5 lb × $0.133 per lb).

To estimate the cost of production at these nutrient levels, I used a target cow milking 70 lb/day at 3.7% fat and 3.1% protein eating 50.4 lb/day. In this model, the average costs should be around $4.94/cow/day or $7.06/cwt.  A cow producing 85 lb/day will increase average feed costs to $6.42/cow/day or $7.56/cwt. These costs do not include the costs of feeding the dry cows nor the replacement herd. In short, this is about a $1/cow/day less than it was in November.

Table 1. Prices of dairy nutrients for Ohio dairy farms, January 27, 2016.


Economic Value of Feeds

Results of the Sesame analysis for central Ohio on January 27, 2016 are presented in Table 2. Detailed results for all 27 feed commodities are reported. The lower and upper limits mark the 75% confidence range for the predicted (break-even) prices. Feeds in the “Appraisal Set” were those for which we didn’t have a price. One must remember that Sesame compares all commodities at one point in time, mid January in this case. Thus, the results do not imply that the bargain feeds are cheap on a historical basis.

Table 2. Actual, breakeven (predicted) and 75% confidence limits of 27 feed commodities used on Ohio dairy farms, January 27, 2016.

For convenience, Table 3 summarizes the economic classification of feeds according to their outcome in the Sesame analysis.

Table 3. Partitioning of feedstuffs, Ohio, January 27, 2016.

As coined by Dr. St-Pierre, I must remind the readers that these results do not mean that you can formulate a balanced diet using only feeds in the “bargains” column. Feeds in the “bargains” column offer savings opportunity and their usage should be maximized within the limits of a properly balanced diet. In addition, prices within a commodity type can vary considerably because of quality differences as well as non-nutritional value added by some suppliers in the form of nutritional services, blending, terms of credit, etc. Also, there are reasons that a feed might be a very good fit in your feeding program while not appearing in the “bargains” column. For example, your nutritionist might be using some molasses in your rations for reasons other than its NE_L and MP content.

Appendix

For those of you who use the 5-nutrient group values (i.e., replace metabolizable protein by rumen degradable protein and digestible rumen undegradable protein), see the table below.

Table 4. Prices of dairy nutrients using the 5-nutrient solution for Ohio dairy farms, January 27, 2016.