Cost of Nutrients and Benchmarks of Profitability for Ohio Dairy Farms

Dr. Normand St-Pierre, Dairy Management Specialist, The Ohio State University.

As we do in all issues of this newsletter, we used current market prices of 29 feed commodities traded or available in Ohio to determine the implicit costs of nutrients and estimate break-even prices of all these commodities using the SESAMETM software developed here at Ohio State. Results for the nutrient costs are reported in Table 1.

Net energy for lactation is still at a very high price, close to two times more expensive than at this time last year; NEL price has averaged $0.089/Mcal since August 2004. Likewise, metabolizable protein (MP: the sum of digestible rumen undegradable protein and digestible microbial protein from the estimated rumen fermentation of the feed) has also nearly doubled in price. Its implicit price is currently much greater than its long-term average ($0.193/lb since August 2004). The non-effective fiber fraction is currently severely discounted in the feed markets (its long-term average is -$0.076/lb). Effective NDF, however, is currently in its normal historical range ($0.018/lb since August 2004). Thus, from a formulation standpoint, attention should be given to dietary energy (NEL) and MP, making sure that rations contain minimum margins of safety. Increasing dietary non-effective NDF (possibly by reducing starch) should lower the cost of the ration by about $0.15 for each pound of additional ne-NDF.

Table 1. Prices of nutrients, central Ohio.

Nutrient name
April 2007
March 2008
April 2008
Net energy for lactation - 3X (NRC, 2001; $/Mcal)
0.088
0.162
0.154
Metabolizable protein ($/lb)
0.165
0.288
0.294
Non-effective neutral detergent fiber (ne-NDF; $/lb)
-0.070
-0.147
-0.126
Effective NDF ($/lb)
0.002
0.002
0.014

At this time last year, corn was priced in the $3.50 to 4.00/bu, prices that were well above the estimated breakeven price for dairy. Thus, corn was then expensive, both from a historical perspective as well as when compared to other feed commodities available on the market. The situation has changed dramatically this year (Tables 2 and 3). In essence, a great number of other commodities have seen substantial price increases, some over-shooting what would be a normal equilibrium price (e.g., tallow). There are still some relative bargains that can substantially lower feed costs if used wisely.

Table 2. Grouping of feed commodities, central Ohio, April 2008.

Bargains
At Breakeven
Overpriced
Bakery byproduct Alfalfa hay - 44% NDF Beet pulp
Corn grain Blood meal Canola meal
Corn silage Brewers grains, wet Citrus pulp
Distillers dried grains Cottonseed meal Whole cottonseed
Feather meal Meat meal Corn gluten meal
Corn gluten feed Roasted soybeans Soybean hulls
Hominy Wheat bran Soybean meal, 44% CP
Molasses   Tallow

Expeller soybean meal

   
Soybean meal, 48% CP    
Wheat middlings    


Table 3. Commodity assessment, central Ohio, April 2008.

Name
Actual ($/ton)
Predicted ($/ton)
Lower limit ($/ton)
Upper limit ($/ton)
Alfalfa Hay, 44% NDF, 20% CP
127
189
157
220
Bakery Byproduct Meal
240
280
266
295
Beet Pulp, dried
390
176
--
--
Blood Meal, ring dried
670
638
602
674
Brewers grains, wet
45
49
44
54
Canola Meal
297
253
240
266
Citrus Pulp, dried
236
216
204
227
Corn Grain, ground dry
225
282
268
295
Corn Silage, 32 to 38% DM
38
78
68
88
Cottonseed Meal, 41% CP
295
306
291
321
Cottonseed, whole w lint
366
310
270
350
Distillers Dried Grains, w/solubles
180
260
240
280
Feathers Hydrolyzed Meal
490
525
501
549
Fish Meal, Menhaden
940
546
--
--
Gluten Feed, dry
189
230
215
244
Gluten Meal, dry
574
532
507
556
Hominy
210
240
227
253
Meat Meal, rendered
435
444
427
460
Molasses, sugarcane
170
208
196
220
Soybean Hulls
194
100
66
134
Soybean Meal, expellers
414
453
436
470
Soybean Meal, solvent 44% CP
395
356
345
368
Soybean Seeds, solvent 48% CP
384
404
390
417
Soybean Seeds, whole roasted
482
468
447
490
Tallow
750
696
650
742
Wheat Bran
163
149
126
172
Wheat Middlings
141
178
158
198

Appraisal Set
Name
Actual ($/ton)
Predicted ($/ton)
Corrected ($/ton)
Alfalfa Hay - 38% NDF, 22% CP
--
220
249
Alfalfa Hay - 48% NDF, 17% CP
--
171
152

As usual, we used these results in combination with Class III component prices for Federal Order 33 to calculate a benchmark for feed costs (which are really nutrient costs) and income over nutrient costs (Table 4). In this column, we have in the past been using figures for a hypothetical Holstein cow producing 75 lb/day at 3.6% fat and 3.1% protein. From now on, costs and income figures will be calculated for a cow more representative of the average cow in Ohio, with a milk production of 65 lb/day, at 3.6% fat, 3.0% protein, and 5.7% other solids. In addition, all results will now be expressed on a per hundredweight basis.

Table 4. Nutrient costs and income over nutrient costs, central Ohio.1

 

April 2007

March 2008

April 2008

 

----------------------- $/cwt ----------------------

Milk income

16.26
18.18
16.94

Nutrient costs

5.62
9.12
9.07

Income minus nutrient costs:
The Cow-Jones Index

10.64
9.06
7.87

1Costs and income for a 1400 lb cow producing 65 lb/day of milk, with 3.6% fat, 3.0% protein, and 5.7% other solids. Component prices are for Federal Order 33.


Although milk prices are still very good from a historical basis, the large increase in the costs of providing the required nutrients to our cows (i.e., feed costs) has increased markedly. Since August 2004, the price of our standardized milk has averaged $15.12/cwt. The current standard milk price is close to $2 above this average. Nutrient costs, however, are now $3.51/cwt greater than the $5.56/cwt average over than same time span. Consequently, the amount of revenues left to cover all other expenses - the income minus nutrient costs, an index that we have named the Cow-Jones Index - has fallen to $7.87/cwt, which is $1.69/cwt under the $9.56/cwt that the index has averaged since August 2004. In prior year, when energy prices were considerably lower, a value of $8.00/cwt for the Cow-Jones Index was a good estimate of the break-even level of producing milk in this state. We now estimate that the break-even for the Cow-Jones Index is somewhere around $9.00/cwt.