Why Are My Feed Costs So High?
Why are my feed costs so high?
Simple question I hear from producers. Not so simple answer.
Let’s work through this question:
- How are you measuring feed costs?
- $/cow? – a rather poor measurement if you don’t consider milk production. I can feed a cow straw rather cheaply, but the milk production might not fill a glass.
- $/ton of protein mix – perhaps the worst one because it depends on feed rate/hd. This past year though, with protein mixes that have remained constant in formulation and feed rate, the inflation of this number catches your attention.
- Purchased feed costs/month – this one is real of course because the checkbook needs to cover these costs. We can easily argue that we need to look at total feed costs/cwt to account for forages, home grown corn grain etc., but I can understand the pain here and this is usually the one that starts the conversation on feed costs.
- $/cwt – this is better of course because it begins to consider milk production but there are plenty of scenarios where this can be misleading (a herd with 100 lbs. ECM vs 80 lbs. ECM with slightly high feed cost/cwt, likely generates more total income). If you are using this number, are your correcting for components with ECM, MCM, or RCM? If you don’t know what those represent, ask your GPS consultant.
- $/lb. of dry matter – this is a pretty clean number that’s risen from $0.10 to $0.14 in the past couple of years. It is laser focused on just feed across all lactating groups. Getting averages across multiple rations is easy with feed software. Do you know your number?
- IOFC (Income over feed cost) – a much better measurement because it starts focusing on revenue. 2022 is a great example of this, higher feed costs have been offset by higher milk prices. The shock and awe of the feed bill is tempered by the shelter of the milk check. Getting a real IOFC is not easy, and most farms do not have real numbers to compare to previous years. Having real forage costs is difficult, a $35/ton guess on corn silage doesn’t cut it with current fertilizer prices. Accrual accounting with a monthly P&L is of course the direction the industry is going; there is no alternative if you really want to know your financial situation.
- Did you contract feed last year?
- There were opportunities in the fall of 2021. At the time, a lot of crystal ball watchers were hoping for lower corn/bean prices and then Ukraine happened.
- More importantly, do you have a plan a to contract feed this coming year?
- Remember the lessons above. It’s not just the $/ton that matters but IOFC. Lock in margin, lock in profit if possible. Locking in feed without protection on milk is not a recipe for success.
- Are you consulting with risk management professionals? Are you maximizing government programs as well as market tools?
- Are you getting the most you can out of your forages?
- Books have been written on the value of high-quality forage. Ask your consultant “How am I doing on a scale of 1 to 10?” And don’t sugarcoat the answer.
- Make sure you have feed software in place that can pinpoint shrink; that assumes you have a truck scale to track inventory.
- Are you getting enough starch out of your corn silage? The golden nuggets growing on those cobs are worth more than before. Work with your agronomist to maximize corn silage.
- Look to the future. Are you maximizing production potential short and long term on your acres? Take care of the soil so it takes care of you.
- And yes, many ingredients are at record highs.
- Bypass fats are over $2000/ton. That equates to a $1/lb. If you feed 0.75 lbs., that’s $0.75/hd/day. That’s double the price from 2 years ago, about $139K for a 1000 cow dairy.
- Blood meal (and similar sources) are up 75% compared to a year ago, about $68k/1000 cows on 0.5 lb. feed rate
- Corn (spot ground price) is about double from 2 years (although not crazy different from 1 year ago). At a 7 lb. feed rate, that comes in at a hefty $179K/1000 cows.
- Prices have ballooned, and the future is unclear on all these prices.
- And no, my crystal ball is not perfect either. There are trends to look at, resources to consider but the global market will continue to throw curve balls.
Still wondering “Why are my feed costs so high?”
Breath and move on to “Do I know where I am at today? What can I control tomorrow?”