The Manager: Welcome to the wild world of sourcing feed
How dairy producers tackle decisions on whether to buy or grow commodity feeds has changed a lot in the last decade
By Tom Overton and Larry Chase
When it comes to making decisions about buying corn and soybeans, things have changed dramatically over the past eight to 10 years in the dairy industry. Those changes, in turn, have huge implications for overall feed costs and net milk income over feed cost.
Think back 10 years. Both corn and soybean prices were low and stable, at least by today’s standards. Back then, we actively steered dairy producers away from growing their own corn for corn meal or high-moisture shelled and ear corn. They seldom thought about growing their own soybeans. And we rarely, if ever, had conversations with dairy farmers about contracting feed commodities.
In most cases it was cheaper for dairies to buy soybean and corn products on the commodity market. Plus, by buying commodities dairies could hopefully avoid inconsistent quality that was a common problem with homegrown feeds. These factors led to dairies shifting acres almost exclusively toward forage production.
Sweeping changes
What a difference a few years make. Now, feed contracting decisions are a key part of overall feed cost management and a dairy’s ability to maximize net milk income over feed cost.
Also, there have been cash flow benefits over the past few months for dairies that have shifted some of their acreage into corn or soybean production. Others have benefited financially by improving their harvest management of “extra” corn to produce quality corn meal or high-moisture corn.
Data from the 2002 Cornell Dairy Farm Business Summary and Analysis program show that the top 10% of producers for feed and crop expenses averaged $3.63 per cwt., compared to the bottom 10% of producers at $6.38 per cwt. Compare that to 2008: The top 10% and bottom 10% producers averaged $5.61 and $8.94, respectively. These differences are huge as they relate to the total cost of producing milk.
Decision making
More than anything, changes in commodity costs have made it critical for producers to be strategic about their feed input decisions. They must spend more time asking the “what if” and “how much” questions.
■ What if I could buy additional forage from the neighbor down the road? How much should I pay? Or how much is too much?
■ What if I could contract certain ingredients? How much seems reasonable to pay?
■ What if I could get a byproduct ingredient at a low price? Is it really a good buy?
In this month’s The Manager by Cornell’s PRO-DAIRY program, we will take some of the confusion out of sourcing feedstuffs, helping you to make better strategic decisions for your feeding programs.
FYI
■ Tom Overton is an animal scientist at Cornell University and associate director of PRO-DAIRY. Reach him at 607.255.2878. Email: tro2@cornell.edu
■ Larry Chase is an animal scientist at Cornell. Reach him at 607.255-2169. Email: lec7@cornell.edu
