What is a good measure of dairy feeding economics?
Feed costs are the largest expense for dairy producers. They are typically account for over 50% of total costs. With the low milk prices, producers and nutritionists are looking for opportunities to reduce feed costs and improve efficiencies. But what measures are useful to help them make decisions?
Suppose your nutritionist gives you two rations with different production levels to choose from (as shown in Table 1). Which one do you prefer? Well, if you only look at the cost of production per day or feed cost per hundredweight of milk, option 1 is cheaper. However, because of option 2 generates 10 lbs more milk, the Income Over Feed Cost (IOFC) is actually $0.39 higher per cow per day than option 1, even with current low milk prices. From this example, we can see that the term such as “cost per cwt of milk” may not be useful and can be misleading. One of the biggest issues of this number is that it ignores the value of milk. It typically costs more feed to produce higher value milk (i.e. higher components or lower SCC). Thus, it is inappropriate to compare feed cost per hundredweight for herds with different component levels or milk quality.
Table 1: Your nutritionist gives you two rations with different production levels to choose from. Which one do you prefer?
Is IOFC the best measure?
Even though IOFC is good tool to measure the impact of feeding decisions, it has several limitations. First, the equation doesn’t consider component changes, and we know that milk fat and protein have a large economic impact. Second, it may not be useful to monitor change over time. If IOFC improves, does it mean that the performance of the herd improved, or simply that milk price was higher or feed costs were lower? Milk premiums for high quality milk are not considered in the equation neither.
Let’s look at another example, comparing a 71 lbs herd with 3.95% fat and 3.26% protein with an 80 lbs herd with 3.40% fat and 2.90% protein, which one is better? This comparison is not so straightforward. Dairy consultant Dr. Greg Bethard developed a measure called Money Corrected Milk (MCM), which is a milk-check based measure of cow productivity. It considers the economic value of milk components and the impact of milk check assessments. Depending on the milk and milk component prices, the 71 lbs and 80 lbs herds may actually generate the same MCM.
In addition, you can use the free website called milkpay.com to evaluate the Revenue Corrected Milk. Below is an example (Table 2) that you can evaluate your milk income changes based on the adjustments of milk yield or component yields or feed costs.
Table 2: According to milkpay.com, a 0.4% increase in milk fat% will help this 500 cows dairy herd increase milk income by $149,596/year. If the dairy producer has to spend $0.2/cow/d more feed costs to achieve this goal, he is still able to make additional net income by $113,096/year. Calculations are based on milk prices of July 2016.
