By Susan Harlow, editor, Northeast DairyBusiness
Fall is an opportune time for dairy producers to consider prepurchasing feed. John Berry, agricultural marketing educator for Penn State Extension, Lehigh County, said August through December are good months in which to buy grain.
“Now we’re just waiting for harvest, so the price is not going to change much and there’s the highest probability of success for good prices.”
And you’ll probably have much less success in March through May, when grain sellers historically sell their product.
Berry said prebuying feed is a way to insure some profitability, not make a killing in the market. Purchasing feed as cheaply is possible isn’t the goal, so have reasonable expectations. “You’re not going to hit a home run every time,” he said.
“In today’s volatile market, there are more opportunities than they’re used to be, but they come and go more quickly than they used to.”
Nevertheless, one producer familiar to Berry discovered that he can make more profit by prepurchasing grain than by preselling his milk.
1. Know your cost of production. Part of that calculation will be the purchased feed cost – it will tell you what you can afford to pay for feed. “Then ask: Is the market offering me an opportunity for profit? Maybe it’s time to lock in some profit. Can I make money on $4 corn? On $6 corn?” Berry said.
2. If you’re in an area where grain is available directly from producers, be aware of variations in quality. Verify test weights, moisture levels, timeliness of delivery and the credit-worthiness of the seller.
“We become very comfortable buying through a grain elevator, but an individual producer may not be as experienced,” Berry said. “You don’t want to be left holding the bag.”
3. Another approach is to use the futures market to lock in a feed price, then buy grain locally when you need it. “The gains from one can offset losses from the other,” Berry said.
Establish the price you’d like to pay – again, by knowing cost of production. Then talk to a broker or your grain company. If you’re a loyal customer, the company may purchase grain at your requested price if it becomes available.
Price information is easy to find through the Internet, DTN or charting services. But you don’t need to drive yourself crazy tracking prices minute by minute, Berry said. Just be informed.
4. Find out what substitute ingredients are available, locally or at a discount. Can your nutritionist make these work in your ration?
“Just keep in mind – don’t make any mistakes,” Berry said. “Don’t get emotional about prices and let your bin get empty because you’re still waiting for a lower price, then have to buy to feed your cows.
“Realize you won’t get the best price – the lowest one – always but avoid the highest priced grain.”
If you can control your feed costs, you’re in as good a position as anyone else to make money, Berry said. But your first goal should be to feed your cows correctly and only then to minimize feed costs.