The 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

In early June of this year, I wrote: “the USDA’s expected yield of 166 bu/acre is about 2 bu/acre above the estimated trend.  This, my friends, would require near ideal corn growing conditions over most of the Corn Belt.  We had very good weather for planting, but some dryness has settled over some pretty large growing areas of the Midwest.  We could be looking at a rough summer on the feed markets.”  Was I smart or just lucky?

I would rather just call it experience.  The first half of the year was marked by an over-exuberance regarding the expected corn crop.  My experience has been that the growing season never goes quite as well as the forecasts when the expectations are flying way high.  Likewise, the situation is generally not quite as bad as the “reports” when the season is bad.  Things tend to regress back towards the mean.  Already, after seeing the corn markets climbing to unbelievable prices in August, the futures markets have toned down some, and prices are regressing back, albeit not enough, for many dairy producers.  We should see more price gyrations this fall; this always happen, so I don’t see why it would be different this year.  The smart operators recognize that fluctuating and unstable feed markets create buying opportunities, where some feeds become real bargains for a short time while others are plain rip-offs.

Nutrient 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 1. Compared to its historical 6-year average of about 10¢/Mcal, NEL is now severely overpriced at 19.4¢/Mcal – which is near record prices.  For MP, its current price (49.8¢/lb) is considerably greater than its 6-year average (28¢/lb).  Thus, we are currently in a period of very high dietary energy prices combined with very high protein prices.  It is this double whammy on both the energy and protein prices that is making this period of feed prices so exceptional.  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), and the discount of 12¢/lb is above its 6-year average (-9¢/lb).  Meanwhile, unit costs of e-NDF are historically low, being priced at about -1.1¢/lb compared to the 6-year average (3.3¢/lb).  Homegrown forages are generally the best sources of effective NDF.

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

Economic Value of Feeds

Results of the Sesame analysis for central Ohio in mid-September 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-September in this 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-September 2012.
Table 2

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-September 2012.

Bargains

At Breakeven

Overpriced

Bakery byproducts
Brewers grains, wet
Canola meal
Corn, ground, shelled
Corn silage
Distillers dried grains
Gluten feed
Meat meal
Molasses
Soybean meal – expeller
Wheat middlings

Alfalfa hay – 40% NDF
Canola meal
41% Cottonseed meal
Whole cottonseed
Gluten meal
Hominy
48% Soybean meal
Tallow
Wheat bran

 

Blood meal
Beet pulp
Citrus pulp
Feather meal
Fish 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. 

Current Dairy Situation

We use the estimates of the nutrient costs to calculate the Cow-Jones Index (CJI) for August.  This index was 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 (ration).  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 nutrients has fluctuated over the years.  Dietary energy is currently very expensive as it currently costs $6.08/day to provide the NEL required for the production of 65 lb/day.  This means that on an average, one has to pay $9.36 just to supply the NEL required to produce a hundredweight of milk.  On the protein side, it currently costs $2.31/cow/day to supply the required MP, which equates to $3.55/cwt.  The total feed costs for our standard cow is now $7.87/day, or $12.10/cwt (or about 16¢/lb of TMR dry matter).  These figures result in a Cow-Jones of $5.84/cwt, which is over $2.00/cwt less than the break-even of $8.00/cwt.  Dairy producers who are paying cash prices for their feeds are incurring severe losses.

The fact that the nutrient costs in August amounted to over 65% of the milk revenues is very troublesome and foreshadows a very difficult financial environment if either current feed prices are maintained throughout the year or if milk prices were to fall.  Fortunately, wholesale prices for cheese, dry whey, butter, and non-fat dried milk have increased noticeably in the last 2 months.  Milk price forecasts (either using the futures markets or more conventional economics analyses) are very good for the balance of the year.  So, there might be some light at the end of this tunnel.