The Cost of Nutrients, Comparison of Feedstuff Prices and the Current Dairy Situation

Dr. Normand St-Pierre, Dairy Management Specialist, The Ohio State University (top of page) pdf file

At this time of the year, I wish that I could bring you some good news.  I am afraid, however, that what has been a modest recovery for our dairy farms starting in late spring is about to end.  Most dairy farms, still under the shock of the 2009 financial disaster, now barely hold their heads above the water.  What’s next?  Feed prices have gone through the roof, and the November decline in milk prices is just the beginning of further declines based on the current cash prices of butter and especially cheese.  Tight financial management will be the norm for the first half of 2011.

First, let us look at feed prices.  As usual in this column, I used the software SESAME™ that we developed at Ohio State to price the important nutrients in dairy rations to estimate break-even prices of all major commodities traded in Ohio and to identify feedstuffs that currently are significantly underpriced.  Price estimates of net energy lactation (NEl, $/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 2. Compared to historical averages (i.e., since January 2005), NEL is now priced at about average (10¢/lb).  For MP, these figures stand at a premium of about 20¢/lb, or a 195 % premium over the 6 year average.  Thus, although we have seen a substantial increase in the price of corn and other energy commodities this fall, the rise in the protein complex has been more substantial.  One must keep in mind that over the last 20 years, dietary energy (NEL) has been priced at about 5¢/Mcal.  Thus, the current dietary energy cost is still well above the long-run average.  The cost of ne-NDF is currently discounted by the markets (i.e., feeds with a significant content of non effective NDF are price discounted), but the discount is at about the 6-year average.  Meanwhile, unit costs of e-NDF are historically low, with a discount of about 2 ¢/lb over the 6-year average.  Home-grown forages can be inexpensive sources of this important nutrient.

Based on mid December wholesale prices, central Ohio, feed commodities can be partitioned into the three following groups (Table 1).  The disconcerting thing from this table is that only 4 feeds are currently in the bargain column, and nearly half of all feeds are in the overpriced column.  This limits potential feed cost savings from feed ingredient substitution.

Table 1.  Partitioning of feedstuffs, Ohio, mid-December 2011.

As usual, I must remind the readers that these results do not mean that you can formulate a balanced diet using only feeds in the bargain 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.  In addition, 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, molasses is often used to reduce ingredient separation in TMR.  Molasses is also an excellent source of sugars.  Some nutritionists balance rations for sugars.  In those situations, molasses might not be at all overpriced.

One must remember that SESAME compares all commodities at one point in time, mid December in our case.  Thus, the results do not imply that the bargain feeds are cheap on a historical basis. 

In Table 3, we report the detailed results for all 27 feed commodities.  The lower and upper limits mark the 75% confidence range for the predicted (break-even) prices.  Feeds in the “Appraisal Set” were either deemed outliers (completely out of price), or had an unknown price (e.g., alfalfa hay of different qualities).

Table 2.  Prices of dairy nutrients for Ohio dairy farms, mid-December 2010.

 Table 3.  Actual, breakeven (predicted) and 75% confidence limits of 27 feed commodities used on Ohio dairy farms, mid-December 2010.