Controlling Feed Cost: What to do when the protein market goes ballistic?

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

When it rains, it pours! Just when we thought that feed prices had reached their peaks in late summer, news of a short U. S. soybean crop reached trading markets, resulting in skyrocketing protein prices, especially high protein sources. With whole soybeans trading near $8.00/bu, it is unlikely that we will see much reduction in protein prices until the next soybean crop in the Southern hemisphere. Meanwhile, you can make tactical and strategic changes to your dairy rations and save some money. To do so, you first must understand how nutrients are currently being priced on the commodity market. The software Sesame is specifically geared to do this. Using 26 commodity prices (FOB, Central Ohio, TTL), we can extract the implicit prices of major nutrients in dairy diets. Results, as of early November 2003, are reported in Table 1.

Unit cost of net energy lactation (NE_L) ($0.067 per Mcal) is within the normal range experienced during the last decade. Thus, energy is currently not particularly expensive and your dairy diets should probably not aim at reducing this nutrient to its strict minimum. Rumen degradable protein (RDP), however, is very expensive ($0.12/lb), a net result of the high soybean meal price combined with most of the protein market moving up in sympathy. The normal ration of a high producing cow ration is generally balanced to supply 5 to 6 lb/cow/day of RDP. Thus, supplying adequate RDP currently costs an average of $0.60 to 0.72/cow/day and represents a significant increase in nutrient costs. On the other hand, the price of digestible, rumen undegradable protein (RUP) is normal ($0.20/lb), and so are the prices of non-effective (ne-NDF) ($-0.01/lb) and effective neutral detergent fiber (e-NDF) ($0.05/lb).

Table 1. Estimates of nutrient unit costs.

- A blank means that the nutrient unit cost is likely equal to zero.
- ~ means that the nutrient cost may be close to zero.
- * means that the nutrient cost is unlikely to be equal to zero.
- **means that the nutrient cost is most likely not equal to zero.

A good look at the ingredients used on your farm may reveal cost saving opportunities. Currently, the following feed ingredients are priced well-below what they are worth (Tables 2 and 3): bakery byproduct meal, ground shelled corn, corn silage, distillers dried grains, gluten feed, hydrolyzed feather meal (with strong reservation due to the considerable range in quality), hominy, and wheat middlings. There are also some feedstuffs that are overpriced: beet pulp, canola meal, expeller-soybean meal, 44% and 48% soybean meal, roasted soybeans, blood meal, and fishmeal. Blood meal is actually priced correctly when the value of lysine (an important amino acid) is factored in our evaluation. Fishmeal, however, is still considerably overpriced ($100 to 150/ton) even when methionine and lysine are factored in the evaluation. Canola meal is a classical case of the lemming syndrome (when everybody seems to be following everybody else in the wrong direction). Canola is cheaper than soybean meal on a per ton basis, but its value is only approximately 70% that of 48% soybean meal. Strategically, it is time to minimize the supplementation of RDP from plant proteins and optimize the use of non-protein sources (urea) and of processed grain by-products (gluten feed and wheat middlings). These recommendations should serve as guidelines. It may be justified to use an ingredient from the overpriced list to fit the specific conditions of a herd. As always, a properly balanced ration, based on sound nutrition must be used. But, the individual components (feedstuffs) making the ration can be changed (increased, decreased, or substituted) without impacting animal performance.

Table 2. Calibration set.

Table 3. Appraisal set.

The estimates were derived using the software SESAME Version 2.05 written at The Ohio State University. For additional information, please refer to Buckeye Dairy News Volume 5, Issue 2, March 2003.

The estimates provided in Table 1 can easily be used to calculate the break-even price of a commodity for which a nutritional composition is available (at least approximately). To facilitate this calculation, we prepared a spreadsheet that can be used either electronically or as a template for manual calculations. In this example, we are assessing the break-even price of a dry (90% DM) food by-product containing 14% crude protein, estimated at 40% rumen undegradability, with 80% of the RUP being digestible post-ruminally, and 20% neutral detergent fiber (NDF) of which only 10% is effective (i.e., induces chewing and rumination). The nutritional composition is entered on a DM basis because this is the universal basis used by laboratories to report chemical composition of feeds. Costs of nutrients are entered on a per unit basis (per pound, except for energy with per Mcal) exactly as they appear in the Sesame printout. Although diets are balanced on a DM basis, commodities are sold on an "as is" basis. Thus, the nutritional content must be translated to reflect the "as is" amounts of each economically important nutrient per ton of feedstuffs. This is exactly what the section titled "Amounts per Ton" does. Thus, one ton of our by-product contains 1486.8 Mcal of NE_L, 80.6 lb of digestible RUP, 151.2 lb of RDP, 36 lb of e-NDF, and 324 lb of ne-NDF. The last section (Value per Ton (as is basis)) calculates the value of each nutrient per ton of by-product. Although the feed contains a moderate concentration of protein (14%), more than 75% of its nutritional value (99.62/132.34) is actually derived from its energy content. The value of the fiber (NDF) in this feed is very close to zero ($1.87 minus $3.89) because so little of the NDF is rumen-effective. Historically, ne-NDF has been implicitly priced at zero (or even small negative values) on the Ohio market. Essentially, suppliers of ne-NDF (mainly grain by-product feeds) are paying users of ne-NDF to use this nutrient.