Cutting on Feed Costs

Please see below what I responded regarding this issue. Feel free to provide feedback.

QUESTION:

I am a loan officer, and a lot of my dairy clients are looking for ways to cut back in these tough times. Obviously all the easy cost cutting has been done, and now they are looking at their purchased feed costs. I have more of a crop production background, and may not understand this fully, but here goes! If they cut back on purchased feed, that would most likely be protein? Then milk production will drop. I am ok with that since milk is not really worth that much now, and feed is so expensive. But shouldn't there be a mathematical curve based on the cost of protein, price of milk, and the conversion of protein to milk ratio?
Similar to the cost of nitrogen, price of corn, and the conversion factor of nitrogen to more corn production?

Again, I may be way off, but this seems to keep coming up at my distressed farm call meetings. I do understand that by cutting production it would decrease the peak production until next calving, and the milk/feed ratio may change by then. But hypothetically this could be shown?

ANSWER:

First, as you say, most of the easy cuts have already been done. Other cuts are dangerous because those need to be carefully considered because of their production impacts. Yes, protein feeds could be revisited, but also I think energy feeds could and should be revisited.

From the point of view of proteins, we have an interesting spreadsheet called "Optimization of Income Over Feed Supplement Cost" (IOFSC) that you could download at http://www.uwex.edu/ces/dairymgt/tools/. This tool will find the maximum IOFSC at user-defined prices of energy and protein sources for a defined dry matter intake and maximum protein levels (according to rumen degradable protein and rumen undegradable protein). User enters prices of commodities and milk and can find the optimal levels of feeds by the click of a button. The tool takes care of all the implications of production when diets are reformulated and will always suggest the optimal level the usage of feeds.

We have also performed similar analyses to what you propose: a mathematical curve based on commodity cost, milk price and feed efficiency of commodity. The analyses are performed for corn and include in addition the feed efficiency changes that occur throughout the lactation curve, hence these feed changes also take into account the stage of the cows in lactation. We have online tools, a spreadsheet and documentation at this address: http://www.uwex.edu/ces/dairymgt/feeding.cfm under the name of alternatives to corn grain feeding.

We are also working on two other important projects under this area. One is the "Wisconsin Dairy Feed Cost Evaluator." With the support of County Extension Agents, we are collecting farm specific data of feed costs and income over feed cost in participating farms. The idea is to find out weaknesses and strengths of farms when compared with their peers. By benchmarking income over feed cost and particular commodity costs, producers are in better position to address and implement an educated plan of feed costs of production.

In addition, we are performing some analyses regarding the mid-term implications of feed cost cutting. You are right that with low milk price, the rationale would be to cut costs even to decrease milk production, which nowadays is not worth much. Right, when you are making a decision in the very short-term. What happen for example in a year period? We all know milk price is cyclical and although we may be going though an historical low, we expect that the milk price will recover. At that time the producer should take full advantage of the good milk price. Since the moment the price improves to the moment the farm reaches optimal production there will be a "lag" time during which the marginal return will not be optimal. For instance, consider this hypothetical example. Today: Milk $10, Feed $5 and 6 months from now: Milk $15, Feed $5. If farmer produces 70 lb/cow per day the IOFC will be $3.5 today and $7 6 months from now. What happens if a producer reduces its milk production to 58.3 lb/cow per day by decreasing the cost of feed from $5 to $4: the IOFC will still be $3.5/cow per day today, but it will be only $4.75 6 months from now, a difference of $2.25/cow per day. Now, let's suppose the farm will require 2 months to reach back 70 lb/cow per day production, then, there would be an opportunity loss of $135/cow for this period of time!

Please stay tuned as we keep working in this issue.