Cost of Nutrients and Benchmarks of Profitability for Ohio Dairy Farms

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

Feed markets have dramatically changed the dairy nutrition landscape this Fall. Corn prices buoyed by the increased demand from ethanol plants, combined with an exuberant interest from speculators, and have risen to heights historically seen in low production years (e.g., 1996). The dramatic changes that will result from the phenomenal growth in ethanol production will require substantial and significant changes to the way that we approach dairy nutrition and ration balancing. We will discuss these in a future issue of Buckeye Dairy News. For now, dairy producers and their nutritionists should at least ensure that feeds used on their farms, either as commodities or as ingredients used in commercial feeds, are justified on an economic basis. To assist in 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 May 2006, prices of nutrients (Table 1) show:

1. A 17% increase in the unit cost of dietary energy,
2. A 7¢/lb drop in the cost of degradable protein,
3. An increase of 5 ¢/lb of digestible rumen undegradable protein (RUP),
4. A drop of 1.4¢/lb of non-effective neutral detergent fiber (NDF), and
5. No change in the price of effective NDF.

Table 1. Prices of nutrients, central Ohio.

From a historical standpoint, net energy lactation is currently very highly priced (10-year average is about 7¢/Mcal), whereas rumen degradable protein (RDP) is much below its historical average of about 0¢/lb. Therefore, as a general rule, it is currently wise to reduce the safety margins of dairy rations for net energy of lactation. Meanwhile, the markets are willing to pay you for using additional rumen degradable protein and non-effective NDF. In practical terms, this means that there are some high RDP and high fiber by-products that are currently bargains.

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 many ingredients in your rations are from the overpriced column, it is time to question your nutritional plan. Details of commodity pricing are shown in Table 3. In this table, the column labeled "actual" is the price for tractor trailer loads 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.

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

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

Nutrient prices and milk component prices can be used to calculate a benchmark for feed costs and income over nutrient costs. Results are presented in Table 4. The cost of feeding for a milk yield of 75 lb/day has gone up by $0.12/cow per day since May and is $0.20/cow per day greater than at the same time last year. This occurred while the price of corn went up from $32/ton (90¢/bu) in May 2006 to $45/ton ($1.26/bu) in November 2006. This indicates that although prices of traded commodities move up or down in "sympathy" with the corn/soybean markets, they do have markets of their own.

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.