The Manager: To contract or not

There’s no crystal ball to help make foolproof decisions on contracting feed. But there are tools that help improve decision making 

 

By Tom Overton and Larry Chase


The stakes are high for dairy producers to make sound decisions on buying commodities and to use effectively such risk management tools as forward contracts. There may have been a time when it was OK to let guesswork and instinct drive these decisions. But volatile feed markets have raised the ante. 

    What can you do? Use web-based tools available to you and your nutritionists that take some of the guesswork out of commodity buying and contracting decisions. With these tools you can objectively evaluate the value of various feedstuffs.

 

     However, the tools should not solely dictate which ingredients to feed and how much of each. A dairy buying only the “best value” ingredients isn’t likely to end up with the most profitable nutritional outcome. But the tools are useful to help identify opportunities available for ration formulation. 

    Some nutritionists try to use ration balancing programs and optimizers to determine the prices at which to add or remove feeds from rations. Although these ration balancing programs can be helpful, all of them – yes, even our own Cornell model – have their biases in terms of which nutrients they key in on. That, in turn, influences the outcomes.  

 

Two tools

    FeedVal and SESAME are the two highly useful and readily available programs to help evaluate the value of feedstuffs. 

    1. FeedVal, developed by Terry Howard and Randy Shaver at the University of Wisconsin, works by using a set of “referee feeds.” These include blood meal, tallow, urea, shelled corn, limestone and dicalcium phosphate. 

    These feeds are used to calculate the value of energy, rumen degradable protein (RDP), rumen undegradable protein (RUP), fat, calcium and phosphorus. The program then calculates the values for the rest of the feeds in the marketplace based upon their content of these nutrients.  

    FeedVal is simple, fast and free for download. But it has two major disadvantages: It doesn’t put value on the fiber component in forages. And it can overvalue protein feeds that have high rumen undegradable protein value but distinct limitations in certain amino acids. For example, distillers grains are very low in lysine, which can limit milk and milk protein yields if fed in excess.

 

    2. SESAME, developed by Normand St. Pierre at The Ohio State University, is a sophisticated program similar in concept to FeedVal. But it has some major differences. For one, it uses all of the available feedstuffs in the marketplace in its calculations of nutrient value. Also with SESAME there’s the opportunity to use a comprehensive and nutritionally relevant array of nutrients. It predicts values for net energy lactation (NEL) (NRC, 2001), metabolizable protein (NRC, 2001), effective neutral detergent fiber (NDF), noneffective NDF, RDP, digestible RUP, methionine and lysine, among others.  

    Based upon the high degree of nutritional relevance, SESAME will be more accurate than FeedVal in most situations. But it’s also more complicated to use and has a $99 licensing fee.  

 

Worth using

    Dairy producers, in general, tend to be conservative about acting on opportunities to lock in prices for commodities. What if a better deal comes along? We’ve all heard of dairies that end up paying more for forward-contracted ingredients because market prices drop. For example, in the fall of 2008 many western U.S. dairies contracted their corn at $300 per ton or more. They’re paying for that decision now.  

     Believe us, there are many, many more examples of dairies that have made profitable contracting decisions. We know of one New York dairy that contracted canola meal for the year at $144 per ton in September 2007. At the time, the dairy’s owner worried that his contract was wrong. In hindsight, we know it was a tremendous buy. 

    There is more opportunity for dairy producers and their advisers to use programs like FeedVal and SESAME to take some of the guesswork out of feed contracting decisions. At the least, the programs allow you to determine what impact price changes of key commodities, such as corn and soybean meal, will have on the value of other feeds in the marketplace. The programs also give you a way to assess decisions about shifting crop acreage into growing grain corn, soybeans or other concentrates.  

     Don’t forget the importance of plugging the value of forages into any calculations on feed purchases and contracts. Given the price volatility of feedstuffs, it’s all the more important for a dairy to feed more homegrown forages. That’s the most profitable decision.

 

FYI

Tom Overton is associate professor of animal science 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

Find FeedVal at this website: www.uwex.edu/ces/dairynutrition/spreadsheets.cfm 

Find SESAME at www.sesamesoft.com



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