Feed Costs Don't Tell the Whole Story

Income Over Feed Cost (IOFC)

Feed is the single most significant cost in the production of milk. On average, it represents over 50% of the costs associated with milk production. Although knowing your feed cost ($/cow/day) is important, it should not be viewed as the sole factor affecting profitability. Consider instead "income over feed cost" (IOFC), which is the gross revenue per cow per day minus her daily feed cost. This shows the efficiency with which feed dollars are converted into milk.

An accurate calculation of feed costs is the first step in calculating IOFC. Consider the following when determining feed costs:
  1. Neither high nor low feed costs guarantee good returns. Excessive concentrate intake and high priced ingredients will increase feed cost per cow but do not necessarily improve production or profit. Excessive concentrate intake can actually reduce production and negatively affect health, reproduction and milk components. A very low feed cost may mean insufficient feed quantity and/or quality to support the desired level of production.
  2. Take into account forage costs as well as purchased feed costs.
  3. Assigning an accurate cost to home grown feeds can be difficult. There are several ways of doing this. Costs from an enterprise budget are preferable to the use of variable costs only. The use of current market values is another alternative. For example, dry hay prices are readily available and can be used for pricing haylages of comparable quality when moisture differences are taken into account. The value of corn silage can be estimated from the market value of dry corn.

Pricing Home-Grown Forages

 
One of the biggest problems when calculating feed costs is assigning an accurate value to home-grown forages. Most areas have an established dry hay market and it is relatively easy to estimate a hay price based on the market value of comparable quality hays. It is much more difficult assigning prices to silages and haylages - forages without readily available market values. Least cost ration formulation programs and enterprise budgets provide precise values but many times simpler and faster methods are needed.
 
The value of haylage can be estimated if you know the dry matter (DM) content of the haylage and the market price for dry hay of similar nutrient content. For example, if hay with 85% dry matter is currently selling for $60/ton, the price for similar quality haylage with 50% dry matter would be $35.29/ton. In this example, the calculation is as follows:
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The following table shows the value of haylages with varying moisture contents and different prices for comparable quality dry hay (85% dry matter).
$/ton of Similar Quality Dry Hay % Dry Matter in Haylage
40% 45% 50% 55%
60 28.24 31.76 35.29 38.82
70 32.94 37.06 41.18 45.29
85 40.00 45.00 50.00 55.00
100 47.06 52.94 58.82 64.71

Barley and corn silages can be valued based on the market price for the corresponding cereal grain. The price per bushel of barley multiplied by 12.5, will provide an estimate of price per ton of barley silage (35% dry matter). Multiplying the bushel price of corn by 9 provides an estimate for the value of corn silage (35% DM). The following tables show how the price of typical barley and corn silage varies with changes in grain price.
Barley ($/bu) Barley Silage ($/ton) Corn ($/bu) Corn Silage ($/ton)
2.00 25.00 3.00 27.00
2.25  28.13 3.25 29.25
2.50 31.25 3.50 31.50
3.00 37.50 3.75  33.75
3.25 40.63 4.00 36.00

 
Adjustments can be made to the prices if the quality (i.e. energy) is lower than average. "Typical" barley and corn silages will have NELs of approximately 1.24 and 1.5 mcal/kg, respectively. If, for example, a feed test for a sample of barley silage shows an NEL of 1.15 mcal /kg, the price should be adjusted downward to 93% (1.15/1.24) of the normal values listed above. If barley is currently selling for $3/bu, the lower quality barley silage would be worth $34.88 per ton ($37.50 X 93%).
Watch IOFC closely with a view towards maximizing it at all times. Consider the following:
  1. Take into account the effect ration changes have on milk components as well as lbs. milk produced. A ration change may improve yield but if it is accompanied by a decrease in milk fat, the net result on IOFC may be negative.
  2. Monitor responses to newly added feed ingredients (e.g. fats, bypass protein sources, feed additives). Keep track of milk yield, components, body condition and feed intake for 2 months prior to and after changes are made. Not every herd will respond in the same way. If added income doesn't justify the added cost, reconsider their use.
  3. Feed well balanced, palatable rations and avoid overfeeding and underfeeding.
  4. Feed high quality forage. Rations based on low quality forages will be more expensive because they require more energy and protein supplementation. However, it is impossible to entirely compensate for low quality forage by increasing concentrate intake. Milk production will never be comparable to that achieved with high quality forage.
  5. Purchase concentrates and forages wisely. Obtain feed prices from three sources at a comparable time. Include delivery charges and any discounts which may be available. Take into account the convenience and dependability of the supplier, as well as feed price, before making a purchasing decision.
  6. Feeding multiple rations to the milking herd can improve IOFC by allowing for the selective feeding of costly feed ingredients. Remember that early lactation cows are the animals most likely to respond positively to additives and concepts (e.g. bypass protein, added fats).
Manitoba Milk Producers and Manitoba Agriculture and Food have just completed the development of the "Manitoba Milk Revenue Analyzer" program. The Excel spreadsheet allows producers to input their calculated values for feed costs and total operating cost per HL of milk as well as the number of dry and milking cows. The program then calculates IOOC (income over operating costs) and IOFC in $/herd/month and $/milking cow per month for a variety of marketing scenarios. The program is available from MAF and MMP.
 

Source: Nutrition Update Volume 13 No.2, November 2002