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

Dr. Normand St-Pierre, Extension Dairy Management Specialist, Department of Animal Sciences, The Ohio State University

Very few people anticipated the bearish report issued January 12th by the US Department of Agriculture. In this report, the USDA increased the 2011-2012 production estimates for both corn and soybean. On report day, March corn futures reached the 40-cent down limit; the drop extended to 60 cents the following day. Where will prices be in a few weeks from now is anyone's guess. Regardless of where corn and soybean prices end up, volatile markets always lead to buying opportunities, especially for some byproducts.

Nutrient Prices

As usual in this column, I used the software 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 still severely overpriced at 15.1¢/Mcal, although this figure is slightly down from 16.2¢/Mcal that occurred last November. For MP, its current price (17.6¢/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. 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 5.0 ¢/LB is below its 6-year average (-9¢/LB). Meanwhile, unit costs of e-NDF are historically high, being priced at about 4¢/LB compared to the 6-year average (3.3¢/LB).

Table 1. Prices of dairy nutrients for Ohio dairy farms, mid-January 2012.

Economic Value of Feeds

Results of the Sesame analysis for central Ohio as of January 16 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 either deemed outliers (completely out of price), or we simply don't have good market prices information (i.e., different quality of alfalfa hay - for these, the 'corrected' values should be used). One must remember that Sesame compares all commodities at one point in time, mid January in our 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, mid-January 2012.


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-January 2012.

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.

Current Dairy Situation

We used 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 CJI 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. This means that on an average, one has to pay $7.82 just to supply the NEL required to produce a hundredweight of milk.
The change in the CJI over time is shown in Figure 1. We cannot calculate the CJI for January 2012 yet because milk component prices will not be announced until early February by the Federal Order administrator. As of December 2011, the cost of supplying all the nutrients amounted to $9.09/cwt, down from a recent peak of $10.84/cwt in September, and down from $9.70/cwt in November. The milk income was $18.96/cwt. The difference is the CJI and was equal to $9.88/cwt. The break-even level for the CJI 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 December, Ohio dairy producers were operating comfortably above break-even levels on an average. 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 CJI. The index, however, is a very good barometer for the average producer. The fact that the nutrient costs in December amounted to 48% of the milk revenues, down from over 60% in January 2011, explains this relative (and very welcomed) profitability.

Figure 1. Cow-Jones Index from January 2005 through December 2011. Although milk prices have been substantially above their 6-year average so far in 2011, the large increases in feed prices have resulted in good but modest profit margins for the whole year.