Cost of Nutrients and Benchmarks of Profitability for Ohio Dairy Farms

Dr. Normand St-Pierre, Dairy Management Specialist, The Ohio State University. (top of page)

Who would have ever thought that $4.00/bu corn would be a bargain!  Although corn prices have reached and exceeded $4.00/bu in the past, these have always been associated with expensive corn, not cheap corn.  But, we have entered a new era in feed prices and as our analysis will show, corn priced at $4.00/bu is currently a bargain feed.
As we do in all issues of this newsletter, we used current market prices of 29 feed commodities traded or available in Ohio to determine the implicit costs of nutrients and estimate break-even prices of all these commodities using the SESAME^TM software developed here at Ohio State.  Results for the nutrient costs are reported in Table 1.

Net energy for lactation is still at a very high price, close to two times more expensive than at this time last year.  Feed markets are currently discounting rumen degradable protein:  each additional pound of RDP in a feed results in an average reduction of $0.21/ton.  Conversely, digestible rumen undegradable protein is priced at a historical premium being implicitly priced at $0.39/lb versus a historical average of $0.18 to 0.20/lb.  The effective and non-effective fiber fractions are currently in their normal historical range. Thus, from a formulation standpoint, attention should be given to dietary energy (NE_L) and digestible rumen undegradable protein, making sure that rations contain minimum margins of safety.

Table 1. Prices of nutrients, central Ohio.

At this time last year, corn was priced in the $3.50 to 4.00/bu, prices that were well above the estimated breakeven price for dairy.  Thus, corn was then expensive, both from a historical perspective as well as when compared to other feed commodities available on the market.  The situation has changed dramatically this year (Tables 2 and 3).  In essence, a great number of other commodities have seen substantial price increases, some over-shooting what would be a normal equilibrium price (e.g., tallow).

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

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

As usual, we used these results in combination with component prices for Federal Order 33 to calculate a benchmark for feed costs (which are really nutrient costs) and income over nutrient costs (Table 4).  Gross income from a cow producing 75 lb/day at 3.6% fat and 3.1% protein is close to $5.00/day greater than it was at this time last year, but has dropped by $0.88/day from September due in large part from the drop in other solids prices.  Income over nutrient costs (IONC) is $3.28/day greater this year than last year, but it has dropped by $1.35/day from September.  Thus, compared to the 10-year IONC average of $6.00 to 6.50/cow/day, the current figure of $9.06 appears very strong and would indicate good profitability in the dairy industry.  Other costs of production, such as energy and transportation, have risen substantially in the last 12 to 18 months, such that a target IONC of $7.00/cow/day is probably a more realistic figure for a probability benchmark.  It is doubtful that the current profitability position of our industry will be maintained in the long-run.  Wise producers should make good use of the extra income to shelter themselves from the next storm.

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.