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 SESAME^TM 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; NE_L 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 (NE_L) 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.

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.

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

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

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.