Buckeye Dairy News: VOLUME 20, ISSUE 6

  1. Milk Prices, Costs of Nutrients, Margins and Comparison of Feedstuffs Prices

    Alex Tebbe, Graduate Research Associate, Department of Animal Sciences, The Ohio State University

    Milk Prices

    In the last issue, the Class III component price for July and August were similar at $14.10 and $14.95/cwt, respectively. For the month of September, the Class III future was projected to decrease slightly to $14.85/cwt and then jump almost a $1.50/cwt to $16.33/cwt in October. The Class III component price for the month of September and October closed at $16.09 and $15.53/cwt, respectively. Class III futures for November are about the same at $15.52/cwt followed by a $1/cwt drop in December to $14.50/cwt.

    Nutrient Prices

    As in previous issues, these feed ingredients were appraised using the software program SESAME™ developed by Dr. St-Pierre at The Ohio State University to price the important nutrients in dairy rations, to estimate break-even prices of many commodities traded in Ohio, and to identify feedstuffs that currently are significantly underpriced as of November 25, 2018. 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.  

    Per usual, commodity and nutrient prices are down. For MP, its current value has increased $0.03/lb from September’s issue ($0.35/lb) and is about 23% lower than the 5 year average ($0.48/lb). The cost of NEL is about the same as September (7.7¢/Mcal) and lower than the 5-year average (11¢/Mcal). The price of e-NDF and ne-NDF are not very different from last month at 8¢/lb and -3¢/lb (i.e., feeds with a significant content of non-effective NDF are priced at a discount), respectively. Now would be a good time to start locking in good prices on commodities and reformulating rations to enable feeding bargain feedstuffs long term.

    To estimate the cost of production at these nutrient prices, I used the Cow-Jones Index for cows weighing 1500 lb and producing milk with 3.7% fat and 3.1% protein. For this issue, the income over nutrient costs (IONC) for cows milking 70 lb/day and 85 lb/day is about $9.78 and $10.17/cwt, respectively. These IONC may be overestimated because they do not account for the cost of replacements or dry cows; however, they should be profitable when greater than about $9/cwt. The IONC for December are better than September ($9.15 and $9.53/cwt, respectively). Overall, profits for dairy farmers in Ohio are marginal to breaking even.

    Table 1. Prices of dairy nutrients for Ohio dairy farms, November 25, 2018.

    Economic Value of Feeds

    Results of the Sesame analysis for central Ohio on November 25, 2018 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 those for which we didn’t have a price or were adjusted to reflect their true (“Corrected”) value in a lactating diet. One must remember that SESAME™ compares all commodities at one specific point in time. 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, November 25, 2018.


    For convenience, Table 3 summarizes the economic classification of feeds according to their outcome in the SESAME™ analysis. Feedstuffs that have gone up in price or in other words moved a column to the right since the last issue are red. Conversely, feedstuffs that have moved to the left (i.e., decreased in price) are green. These shifts (i.e., feeds moving columns to the left or right) in price are only temporary changes relative to other feedstuffs within the last two months and do not reflect historical prices.

    Table 3. Partitioning of feedstuffs in Ohio, November 25, 2018.

    Bargains At Breakeven Overpriced
    Corn, ground, dry Alfalfa hay - 40% NDF Mechanically extracted canola meal
    Corn silage Bakery byproducts Citrus pulp
    Distillers dried grains Beet pulp Fish meal
    Feather meal Blood meal Molasses
    Gluten feed 41% Cottonseed meal Solvent extracted canola meal
    Hominy Gluten meal 44% Soybean meal
    Meat meal Soybean hulls Tallow
    Soybean meal - expeller 48% Soybean meal Whole, roasted soybeans
    Whole cottonseed Wheat bran  
    Wheat middlings    

    As coined by Dr. St-Pierre, 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 a 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. Also, 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, your nutritionist might be using some molasses in your rations for reasons other than its NEL and MP contents.

    Appendix

    For those of you who use the 5-nutrient group values (i.e., replace metabolizable protein by rumen degradable protein and digestible rumen undegradable protein), see Table 4.

    Table 4. Prices of dairy nutrients using the 5-nutrient solution for Ohio dairy farms, November 25, 2018.

     

     

  2. Livestock Building Rental Considerations

    Rory Lewandowski, Extension Educator, Wayne County, Ohio State University Extension

    Recently, I have gotten some questions about rental of livestock buildings, specifically dairy facilities. Typically, callers want to know a charge per square foot or a rental rate based on a per head basis, or for a dairy facility, based on number of free stalls. The reality is that there is no one correct answer. Several methods or approaches generate a dollar figure for rental. However, you should view that number as a starting point in a rental negotiation. There are additional factors that affect the final rental rate. Those factors include the age and condition of the building, location of the building, the functionality or obsolescence of the building, the demand for rental of this type of building, and the character and personality of the parties involved in the rental agreement. 

    The simplest and most direct way of calculating a building rental rate is to use a commercial rate, a known market. While these types of figures are available for grain storage and some equipment storage markets, they are not available for livestock building rentals. We don’t have a commercial livestock building rental market. A second method is to use survey data. Survey data are commonly used to provide rates for custom farm work and cropland rental. The reliability of those numbers is dependent upon getting significant numerous responses. The issue with livestock building rental surveys is that there are a very limited number of surveys and those surveys generally have a small number of responses, so use results with caution. You can get an answer that is fast, easy, and very wrong for your situation. The most recent farm building rental survey that I know of is a May 2014 document by the North Central Farm Management Extension Committee. It is available on line at http://tiny.cc/farmbldgrentalsurvey. The number of responses for dairy building rental varies between three and nine.

    The best method for determining a rental rate for livestock buildings is to actually calculate some building ownership costs and use those figures as a starting point in coming to a rental rate agreement. There are two basic categories of building ownership costs, variable and fixed. Variable costs are dependent upon building use and the level or intensity of building use. Those costs include utilities, use-related repairs and maintenance, and possibly costs of additional wear and tear beyond depreciation. Often variable costs increase as the number of animal units or production level in the building increases.  

    Fixed costs are incurred regardless of the level of building use. Fixed costs remain even if the building sits empty. The fixed costs of building ownership include depreciation, interest, repairs (maintenance not related to building use), taxes, and insurance. The low end of any building rental agreement must cover at least the variable costs of using the building. There must be some way to measure these costs, especially costs such as electricity, fuel, and water. However, the building owner realizes no gain until at least some portion of the fixed costs are included in a rental agreement.

    The North Central Farm Management Extension Committee publication “Rental Agreements for Farm Buildings and Livestock Facilities”
    (http://tiny.cc/NCFMfarmbldgrental) contains a good worksheet to help building owners estimate ownership costs. A basic starting point for determining ownership costs requires an estimate of the current value of the building to calculate depreciation. One method commonly used is to determine a replacement cost for the current building along with an estimate of the useful life, generally in the 15 to 25 year range. Next, determine how many years of useful life remain in the current building. Depreciation is the replacement cost divided by useful years of life remaining in the current building. If the building is under loan, then the interest cost is the actual interest payments on the building loan. With no loan, calculate interest costs as a return on investment by multiplying an annual interest rate times the current value of the building. The interest rate used could be the current rate to borrow money, the rate for invested dollars, or possibly an average of the two. The county auditor’s office can provide the building tax rate. Use the actual insurance policy for insurance costs. Alternatively, multiply the current building value by 1.5% to get an estimate of tax and insurance costs. The most accurate way to get cost of building repairs is from farm records. According to an Iowa State University publication entitled “Computing a Livestock Building Cash Rental Rate” (https://www.extension.iastate.edu/agdm/wholefarm/html/c2-26.html), a value of 2 to 4% of the replacement (not current) value of the building provides a reliable estimate if records are not available.

    For example, let’s say I investigate and find that it would cost $325,000 to build a new free-stall dairy barn of similar size, function, and with comparable technology and features to what is currently present on the farm. That building would have a 20-year life. My current building is 8-years old, so I have 12 years of useful life remaining, equivalent to 60% (12 divided by 20) of the building replacement value. The current value of my building is therefore $325,000 x 0.60 or $195,000. The annual depreciation cost is $325,000 divided by 12 (years of useful life left) equals $27,083. Note that in some cases, buildings may still be serviceable after their useful live and so depreciation expense could be zero. For this example, assuming no outstanding loan on the building, I am going to calculate a conservative return on investment using an interest rate of 3% times the current value of the building ($195,000) equals $5,850. To calculate taxes and insurance costs, ideally I use actual values, but in this example, I will use 1.5% times the current building value which equals $2,925. Next, I need to estimate repair costs. I will use 3% times the replacement value ($325,000) which equals $9,750. My total estimated fixed cost of building ownership is the sum of these calculations or $45,608 annually.

    Knowing the fixed costs of building ownership can guide a rental negotiation. The ideal situation is that the building renter, in addition to paying all the variable building costs, will cover the fixed costs as well. In most markets, that may not be realistic. The next best-case scenario is that the cash costs of building ownership are covered after building variable costs. Those costs include taxes, insurance, and repairs. In our example, those cash costs equal $12,675. From a purely economic point of view, if an empty building can’t generate enough rental income to cover cash expenses in the foreseeable future, it is reasonable to consider demolishing the building.

    I have found a couple of spreadsheets available on-line that can help to calculate building costs and potential rental rates. They are available at https://www.agmanager.info/ksu-building-cost-rent, and
    https://dunn.uwex.edu/agriculture/farm-management/farm-lease-information/. Click on “Lease Payment Evaluators”, then “Building Rental Evaluator”.

                The most important piece of any building rental is a written lease. The lease spells out not only the rental rate but also specifies dates of rent payments, what happens if rent is late, and how the rental agreement is renewed or terminated. The lease contains provision about how repairs are handled, how water and utilities are paid for and maintained, limitations on modifications to the building, how many livestock can be housed, rights of entry and inspection, and even how manure will be handled and where it will be applied. The North Central Farm Management Extension Committee publication “Rental Agreements for Farm Buildings and Livestock Facilities” contains a sample lease agreement that can serve as a starting point.

    Finally, the characteristics of the potential renter are another consideration in a lease agreement. Things like how they care for property, personal habits, reliability, honesty, temperament, and how you get along with them can all matter and might influence the rental price either upwards or downwards.

    References and Livestock Building Rental Resources:

    • Computing a Livestock Building Cash Rental Rate, Iowa State University Extension, Publication C2-26.
    • North Central Farm Management Extension Committee publication “Rental Agreements for Farm Buildings and Livestock Facilities”, NCFMEC-04.
    • Figuring Rent for Existing Farm Buildings, Purdue University, Publication EC-451.

  3. Corn Silage Harvest Fall 2018

    Dr. Maurice Eastridge, Professor and Extension Dairy Specialist, Department of Animal Sciences, The Ohio State University

    Change is ever present, including in forage harvesting conditions. Even without listening to the weather report, we know by the challenges in harvesting forages this fall, the limited days to apply manure, and the constant muddy conditions in animal lots that the amount of precipitation in the Midwest is above average. We may have already forgot how wet it was in July 2017 (Figure 1) which created difficulty in harvesting legumes and grasses, but our focus at the moment is on the challenges of the current wet conditions and its consequences. Actually for the Columbus area (data used for Table 1), the precipitation to date since April 1 is only about one inch greater than the same time period in 2017. However, since August 2018, we have experienced about 2.3 inches additional rainfall compared to 2017. Especially notable in this time period is the 5.4 inches of rain in August when corn silage harvest began in several areas.

    Based on the 2018 weather conditions since August, it appears that in general the corn silage yields have been rather good (not in every situation by no means), but general comments from the field have implied some quality concerns. Some have expressed that the wet conditions delayed harvest and the plant exceeded optimal maturity. In these situations, advanced kernel maturity may result in lower starch digestibility, especially if a plant processor was not used or if proper settings were not used. Data from Cumberland Valley Analytical Services (Waynesboro, PA; https://www.foragelab.com) for corn silage were summarized over two time periods, January 2016 through July 2018 and August 2018 through November 2018 (Table 1) to look for potential changes in composition. The concentrations of DM, CP, ADF, and NDF were similar among the two populations; however, the starch digestibility was lower in fall 2018 by 5.3 percentage units and NDF digestibility tended to be lower for the same comparison. Of course, these digestibility measures do not reflect the potential magnitude of differences in total tract digestibility of these two major carbohydrate fractions, but they can reflect potential changes in digestibility and thus animal performance.

    At this point in the season, the corn silage is in storage and thus if analyses indicate that digestibility may be less than typical, then the following considerations should be made:

    1. Can the corn silage be left in storage longer before feeding? Longer storage time may increase starch digestibility.Are there economical options for lowering the inclusion level in the diet of the corn silage with lower digestibility?
    2. If feeding rates are adequate for having two storage units for corn silage open, feed the lower digestibility silage to later lactation cows and growing heifers.
    3. With the wet field conditions and corn being in the field longer for damage to kernels, be watchful for signs of molds that produce mycotoxins.

    Table 1. Analytical values for corn silage samples from the Mid-Atlantic region of the US (data from Cumberland Valley Analytical).


    Item


    January 2016 through
    July 2018

    		 August 2018 through
    November 2018
    Number samples 46,047 7,509
    DM, % 36.0 36.7
    CP, % 7.85 7.62
    ADF, % 23.3 23.1
    NDF, % 38.6 38.6
    NDF 30 h digestibility,% 56.2 55.4
    Starch, % 34.4 35.7
    Starch 7 h digestibility, % 72.7 67.4

    Figure 1. Precipitation in Columbus, OH for April through November during 2017 and 2018.

  4. Ohio Dairy Challenge, October 2018

    Dr. Maurice Eastridge, Professor and Extension Dairy Specialist, Department of Animal Sciences, The Ohio State University

    The 2018 Ohio Dairy Challenge was held October 26-27 and was sponsored by ADM Animal Nutrition, Cargill Animal Nutrition, Provimi North America, Purina Animal Nutrition, Sexing Technologies, and Balchem. Dairy Challenge provides the opportunity for students at Ohio State University to experience the process of evaluating management practices on a dairy farm and to interact with representatives in the dairy industry. The program is held in a contest format for undergraduate students whereby they are grouped into teams of three to four individuals. Veterinary and graduate students are invited to attend the farm visit and participate in a meeting later in the evening with the contest judges to discuss observations on the farm. The farm selected for the contest this year was the Ruprecht Dairy Farm in Butler, OH owned by Ken, Marilyn, and Lyle Ruprecht. The Ruprecht family moved to their current location in 1997 with about 35 cows and continued to steadily expand over the years to whereby today they have about 200 cows. In 2016, they built a new calf barn, freestall barn, sand separation lanes, lagoon, and a bunker silo. Cows are milked 3 times-a-day in a double 6 herringbone parlor. The forages grown on the farm include corn silage and alfalfa. There were 48 undergraduate students (13 teams; 7 students from ATI and 41 from the Columbus campus), 24 veterinary students, and 3 graduate students that participated. The undergraduate teams this year were again divided into novice and experienced divisions for judging purposes. The contest started by the students and the judges spending about two hours at the farm on Friday afternoon, interviewing the owner and examining the specific areas of the dairy facility.  During Friday evening, the undergraduate teams spent three to four hours reviewing their notes and farm records to provide a summary of the strengths and opportunities for the operation in the format of a MS PowerPoint presentation that had to be turned in on Friday evening. On Saturday, the undergraduate students then had 20 minutes to present their results and 10 minutes for questions from the judges. The judges for the novice division were:Larissa Deikun (Cargill/Provimi), Bob Hostetler (Sexing Technologies), Luis Moraes (Assistant Professor, Department of Animal Sciences), and Greta Stridsberg (Balchem). The judges for the experienced division were: Alan Chestnut (Cargill/Provimi), Maurice Eastridge (Professor, Department of Animal Sciences), Brian Lammers (ADM Animal Nutrition), and Dwight Roseler (Purina Animal Nutrition). Shaun Wellert with ATI also assisted with the program. The awards banquet was held on Saturday, October 27 at the Fawcett Center on the OSU Columbus campus. The top two teams in the novice division consisted of: Arden Bishop, Marisa Lake, Heather Kaplan, Heather Pechtl, Rebekah Fries, Emily Gaglione,

    Hilary Kordecki, and Katia Hardman. The top team in the experienced division consisted of Lexie Nunes, Morgan Westover, Kate Sherman, and Hunter Meese. Students will be selected to represent Ohio at the National Contest and to participate in the Dairy Challenge Academy to be held in Tifton, GA during March 28-30, 2018. Students from ATI participated in the Northeast Regional Dairy Challenge held November 8-10, 2018 in Fairlee, VT, and students from the Columbus campus will be participating in the Midwest Regional Dairy Challenge hosted by University of Illinois during February 13-15, 2019 in Freeport, IL. The coach for the Dairy Challenge program at ATI is Dr. Shaun Wellert and Dr. Maurice Eastridge is the coach for the Columbus campus. Additional information about the North American Intercollegiate Dairy Challenge program can be found at: http://www.dairychallenge.org/

    Pictured (left to right): Lyle, Marilyn, and Ken Ruprecht.
    Novice Division (left to right): Heather Pechtl, Arden Bishop,
     Marisa Lake, and Heather Kaplan.     
    Novice Division: Katia Hardman, Emily Gaglione,
     Hilary Kordecki, and Rebekah Fries.                                          
      Experienced Division: Lexie Nunes, Kate Sherman,
     Morgan Westover, and Hunter Meese.