The Costs of Nutrients, Comparison of Feedstuffs Prices, and the Current Dairy Situation

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

The milk and feed markets have gone down recently.  Nobody really knows where milk prices are heading 3 to 6 months from now.  With all these changes, however, it is too easy to loose track of what should be the overall feed strategy and where the average dairy producer stands in term of profitability.  First, let's examine the feed markets in mid November and how feed prices translated into nutrient prices.

Nutrient Prices

As usual in this column, I used the software SESAMETM 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 1. Compared to its historical average of about 10¢/Mcal, NEL is now severely overpriced at 16.2¢/Mcal, although this figure is down from its peak of 17.4¢/Mcal in June.  For MP, its current price (12.1¢/lb) is considerably less than its 6-year average (28¢/lb).  Thus, we are currently in a period of very high dietary energy prices but low protein prices.  This is even more evident when one is reminded that less than 10 years ago dietary energy (NEL) was priced at about 5¢/Mcal.  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 of -3.5 ¢/lb is below its 6-year average (-9¢/lb).  Meanwhile, unit costs of e-NDF are historically high, being priced at about 4¢/lb over the 6-year average (3.3¢/lb).  Homegrown forages can be inexpensive sources of this important nutrient.

Table 1.  Prices of dairy nutrients for Ohio dairy farms, mid-November 2011.
Description: Nutrients.jpg

Economic Value of Feeds

Results of the Sesame analysis for central Ohio in mid November 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 deemed outliers (completely out of price).  One must remember that Sesame compares all commodities at one point in time, mid November in our case.  Thus, the results do not imply that the bargain feeds are cheap on a historical basis.
For convenience, Table 3 summarizes the economic classification of feeds according to their outcome in the Sesame analysis.

Table 3. Partitioning of feedstuffs, Ohio, mid-November 2011.


At Breakeven


Brewers grains, wet
Corn silage
Distillers dried grains
Gluten feed
Wheat bran
Wheat middlings


Alfalfa hay - 44% NDF
Bakery byproducts
Canola meal
Corn, ground, shelled
41% Cottonseed meal
Whole cottonseed
Feather meal
Meat meal
48% soybean meal
Soybean meal - expeller


Blood meal
Beet pulp
Citrus pulp
Fish meal
Gluten meal
Soybean hulls
44% soybean meal
Roasted soybeans


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 "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.  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. 

Table 2.  Actual, breakeven (predicted) and 75% confidence
limits of 27 feed commodities used on Ohio dairy farms, mid-November 2011.
Description: Feeds.jpg

Current Dairy Situation

We use the estimates of the nutrient costs to calculate the Cow-Jones Index (CJI), an index constructed here at Ohio State to measure the difference between milk revenues and the costs of providing the required nutrients at a production level of 65 lb/cow/day.  The Cow-Jones is conceptually very similar to income-over-feed costs, but it is calculated without making reference to any specific diet.  The reference cow used to calculate the Cow-Jones weighs 1500 lb and produces 65 lb of milk at 3.6% fat and 3.0% protein - which is about the average cow productivity in Ohio.  This cow has daily requirements of 31.3 Mcal of NEL, 4.64 lb of MP, 10.15 lb of e-NDF, and 3.38 lb of ne-NDF.  The cost of supplying these nutritional requirements has fluctuated in the last 6 years.  Dietary energy is currently quite expensive, and it currently costs over $5.00/day to provide the NEL required for the production of 65 lb/day (Figure 1).  This means that on an average, one has to pay $7.82 just to supply the NEL required to produce a cwt of milk.


Figure 1.  Costs associated with the supply of 31.3 Mcal of NEL and 4.64 lb of MP per day from January 2005 through November 2011.

The change in the Cow-Jones index over time is shown in Figure 2.  We cannot calculate the CJI for November yet because milk component prices will not be announced until December 2 by the Order administrator.  As of October 2011, the cost of supplying all the nutrients amounted to $9.70/cwt, down from a peak of $10.84 in September.  The milk income was $18.26/cwt.  The difference is the Cow-Jones Index and was equal to $8.56/cwt. The break-even level for the Cow-Jones Index is approximately $8.00/cwt.  A Cow-Jones in excess of $9.00/cwt is indicative of good profitability in the dairy industry.  Thus in the month of October, Ohio dairy producers were operating slightly above break-even levels.  Of course some people are more efficient in feeding their cows; others achieve greater production levels than the state average of 65 lb/day.  For these producers, their income over feed costs would be better than the Cow-Jones.  The index, however, is a very good barometer for the average producer.  The fact that the nutrient costs in October amounted to over 53% of the milk revenues is very troublesome and foreshadows a very difficult financial environment if either the current feed prices were to increase throughout the year or if milk prices were to fall even further from their current levels.