Cost of Nutrients and Benchmarks of Profitability for Ohio Dairy Farms

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

What will be the average US corn yield this year?  Is China buying corn?  Can Brazil compensate for the US acreage reduction in soybeans?  These are just a few among many questions whose answers will affect the US grains and oilseeds markets in the next year.  Because of the uncertainty, be prepared for very volatile markets.  Feed prices can change very quickly.  What was a bargain feedstuff one month may be overpriced the next month.

At the time of this writing (early September 2007), most feedstuffs were expensive from a historical perspective.  Some, however, were inexpensive relative to other feeds.  As usual, SESAME^TM (available at www.sesamesoft.com) was used to estimate implicit prices of nutrients from market prices of 29 commodities available in central Ohio (Table 1).  Net energy lactation is still at a very high price, approaching $0.14/Mcal compared to a 10-year average of about $0.07/Mcal.  Rumen degradable protein is currently very inexpensive, whereas digestible rumen undegradable protein is priced about at the average long-term price.  Non-effective neutral detergent fiber (NDF) is cheap (markets are discounting this nutrient), whereas effective NDF is priced at the upper end of its historical trends.  In short, dietary energy is currently very expensive and should impact the diet formulation strategy used by field nutritionists.

Table 1. Prices of nutrients, central Ohio.

In Tables 2 and 3, we report the results for 27 feed commodities traded in central Ohio.  Although corn price is high from a historical perspective, corn is currently a bargain compared to other feedstuffs in the market.  The price of many feeds has risen in sympathy with corn, but many, such as tallow, have overshot their economic values. 
Using nutrient prices and milk component prices, we can calculate a benchmark for feed costs and income over nutrient costs. 

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

Table 3. Commodity assessment, central Ohio, July 2007.

Results are presented in Table 4.  The costs of feeding for a milk yield of 75 lb/day at 3.6% fat and 3.1% protein has gone up $1.32/cow per day since May 2006.  This translates to an increase in feed costs of $1.76/cwt during the same period.  Current milk prices, however, generate additional gross income over feed cost of $5.59/cow per day when comparing May 2006 to September 2007.  At $10.41/cow per day, the current income over feed cost is substantially greater than the average of $6.25 to 6.50/cow per day that we have experienced over the last five years.  Clearly, dairy production is currently very profitable, which compensates for the disastrous year that dairy producers went through in 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, October 2006.
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.