Cost of Nutrients and Benchmarks of Profitability for Ohio Dairy Farms

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

Here are a few things that we know. The price of milk is dropping. It always rains as soon as you start the first cut of hay. Feed prices keep changing. All of these events create headaches and opportunities. In this column, we concentrate on the opportunities offered from changes in feed commodity markets.
Springtime generally brings substantial changes in the relative price of feedstuffs. With a few exceptions, this year has been an exception so far. There has been no significant change in the relative prices of most feed commodities lately. But, it is always good to periodically re-evaluate your purchasing strategy. To help you with the process, we evaluated current commodity markets in central Ohio using the software SESAME (available at www.sesamesoft.com). The appraisal would be slightly different for other Ohio regions, but not markedly so.

Compared to March 2006, prices of nutrients (Table 1) show:

1) A drop of 0.7¢ per Mcal of net energy lactation,
2) An increase of 2.4¢ per pound of degradable protein,
3) A drop of 0.8¢ per pound of undegradable protein,
4) No change in the price of non-effective NDF, and
5) An increase of 1.5¢ per pound of effective NDF.

Therefore, as a general rule, it is currently wise to reduce the safety margins of dairy rations for degradable protein and effective NDF. Meanwhile, the markets are willing to pay you for using additional non-effective NDF. In practical terms, this means that there are some high fiber by-products that are currently real bargains. These are identified in Table 2.

In Tables 2 and 3, we report the results for 27 feed commodities traded or available in central Ohio. Table 2 conveniently groups commodities into three groups: bargains, at breakeven, and overpriced. If all the ingredients in your rations are from the overpriced column, it is time to visit with your nutritionist. Details of commodity pricing are shown in Table 3. In this table, the column labeled "actual" is the price for tractor trailer loads (TTL) FOB central Ohio. The "predicted" column is the calculated breakeven price per ton; lastly, the "lower limit" and "upper limit" are the 75% confidence range for the breakeven price.

Nutrient prices can be used to calculate a benchmark for feed costs. All these years of research have resulted in relatively precise nutrient requirements for milk production. Results of the calculations using the National Research Council (2001) requirements are presented in Table 4. The cost of feeding for a milk yield of 75 lb/day has gone up by 3¢/cow/day since March. Meanwhile, milk prices have plummeted. Consequently, income-over-feed costs (IOFC) has dropped $1.02/cow/day from March 2006, and $2.93 from May 2005. Historically, this benchmark has averaged about $6.00/cow/day. At $4.82/cow/day, IOFC is well below this average, resulting in meager profits, if any, for our Ohio dairy farms. Considering that the national supply of milk is very strong, one needs a good dose of optimism to see any light at the end of this low milk price tunnel. Management on our dairy farms must be prepared for an extensive period of low prices and very marginal profits at best.

Table 1. Prices of nutrients, central Ohio.

Table 2. Grouping of feed commodities, central Ohio, May 2006.

Table 3. Commodity assessment, central Ohio, May 2006.

Table 4. Nutrient costs and income over nutrient costs, central Ohio.¹

¹Costs and income for a 1400 lb cow producing 75 lb/day of milk, with 3.6% fat, 3.1% protein, and 5.9% other solids. Component prices are for Federal Order 33, August 2005.
²NE_L = Net energy for lactation, RDP = rumen degradable protein, RUP = rumen undegradable protein, ne-NDF = noneffective neutral detergent fiber, and e-NDF = effective neutral effective fiber.