Forage Costs Crucial to Dairy Profitability
by Bill Mahanna
A recent journal paper by Pennsylvania State University researchers (Buza et al., 2014) provided an interesting perspective on the impact of forage costs on milk yield and, more importantly, on profitability as measured by income over feed cost (IOFC).
This column will delve into these findings and also addresses various ways for dairies to view efficiency and profitability.
Dairy Feed Efficiency
There are many ways to interpret the importance of forage quality on the feed efficiency or profitability of a dairy enterprise. In recent years, entire conferences have been devoted to the efficiency of feed utilization in livestock production.
Feed conversion expresses the ratio of feed input to body mass gain output. Livestock industries use feed conversion as a profitability benchmark in the production of poultry (less than 2:1), pork (less than 3.5:1) and beef (about 4.5- 20:1, depending on the age and diet).
The dairy industry inverts the feed conversion ratio and typically evaluates dairy feed efficiency (DFE), defined as the units of milk output per unit of dry matter intake (DMI). Feed efficiencies will normally vary across animal groups, with lactating cows approaching a DFE of 1.8, while late-lactation, pregnant cows that are gaining back lost body condition will naturally have a lower DFE.
Assuming that an average dairy herd consists of 25% early-lactation cows and 25% late-lactation cows, with the remaining 50% in mid-lactation, the recommended minimum DFE across an entire dairy herd is 1.4-1.5 (Hutjens, 2004).
It may also make economic sense to think of DFE from a total enterprise perspective rather than from a cow group perspective — in other words, total milkshipped (not produced) against total feed produced or brought onto the farm. This would help account for important economic factors such as dry matter loss (shrink) in silages or commodities, feeder error/waste and feed bunk management.
DMI by animal group (e.g., transition, early-lactation or late-lactation cows) must be accurately determined so DFE by animal group can be evaluated. The evolution of feed management software interfacing with feed mixers now allows producers to capture feed delivery data. Perhaps more important is the ability to capture weigh-backs (feed refusals, orts, etc.) so accurate feed intake by pen can be determined.
It is also important to capture accurate pen counts in larger dairies where the cows are moving between multiple pens and to be sure that the intake data and same time period.
While average DMI per cow is used to calculate DFE, it is also important to understand and manage the daily variations in DMI such that the mechanics of feed delivery are not causing undue problems with rumen health and function.
The concept of higher-quality forages improving DFE is fairly straightforward. Cows that consume more dry matter will produce more milk (generally 2 lb. of milk for every 1 lb. increase in DMI). As intake and milk production increase, typically so does DFE. The reason for the improved DFE is that a larger and larger portion of the cow’s feed intake is being used for productive purposes and a smaller proportion for maintenance (Erdman, 2011).
Casper (2008) published a literature review of 422 trials with an average DFE of 1.52 but in a range of 0.86 to 2.30. Casper reported that, from his field experience, herds that had higher milk production but lower-than-expected DMIs tended to be fed extremely highly digestible forages.
A separate field study by Casper (2004) of six commercial herds demonstrated a reasonably good relationship (R-square = 0.59, P < 0.01) between DFE and the dry matter digestibility of the diet. There was also an inverse relationship (R-square = 0.72, P < 0.01) between DFE and DMI such that cows with a higher DFE consumed less dry matter.
Within this study, the range in digestibility of the forages explained most of the variation in the diet, given that forages comprised the largest portion of the diet and had significantly more variability in digestibility than the grain or commodity feeds.
Finally, when calculating the milk yield (numerator) portion of DFE, it is important to correct for milk components because more nutrients are needed when the milk fat and protein content increases. The most common approach used in the U.S. is to correct (standardize) by adjusting milk yield to a content of 3.5% fat, or fat-corrected milk (FCM), which is calculated as 0.4318 (pounds of milk) + 16.23 (pounds of fat).
A better approach is to use energy-corrected milk (ECM) — calculated as (12.82 x pounds of fat) + (7.13 x pounds of protein) + (0.323 x pounds of milk) — to also account for the variation in the protein content of milk. Both FCM and ECM assume 5.0% lactose content.
Efficiency is important to the dairy industry. It plays into global food security concerns over a decreasing agricultural land base due to more urbanization of expanding human populations. Feed efficiency further affects the profitability of livestock enterprises given current feed costs and increased competition for forage and grain for biogas and ethanol production.
However, astute dairy producers should also be monitoring profit margins rather than simply milk income or the feed cost per cow per day. Monitoring gross milk income per cow alone does not provide a good estimate of cash flow or profitability, especially when feed costs are high (Buza et al., 2014).
IOFC is calculated as milk revenue per cow per day minus feed cost per cow per day and has become the margin metric of choice on many dairies, accounting for volatility in both milk income and feed costs. Day-to-day feeding and management decisions should be evaluated using IOFC, although IOFC generally does not consider items like shrink, refusals, hospital cows and dry cows (Bethard, 2012).
Many nutritionists are starting to standardize milk yield for income potential based on how milk components are priced in specific end-use markets (e.g., fluid milk, cheese or yogurt).
Revenue-corrected milk (RCM) corrects milk yield based on U.S. federal milk marketing order Class III component pricing for fat, protein and milk solids used to price more than 50% of the milk produced in the U.S. There are computer and smartphone apps developed by Adisseo (MilkPay) that automatically upload current component pricing and calculate FCM, ECM and RCM.
Using RCM as the numerator in calculating DFE helps move DFE beyond solely a biological metric of efficiency to one that encompasses producer profitability.
RCM can also be used in the calculation of IOFC. If IOFC shows improvement, it may not necessarily indicate herd improvement but simply that the milk price has increased or the feed cost has decreased. Fixing feed prices, component prices and milk check assessment (quality premiums, hauling) changes in RCM-based IOFC reflects the true economic performance of a herd over time (Bethard, 2012).
Penn State Study
Buza et. al. (2014) used the Pennsylvania State Extension Dairy Team IOFC tool (Ishler et. al., 2013) to evaluate the effects of total feed cost, forage cost, purchased feed and inclusion of byproducts on the milk yield and IOFC of 95 Pennsylvania herds from 2009 to 2012 (Table).
Feed costs for home-raised feeds were based on market value rather than onfarm production costs.
In this study, minimizing the feed cost per cow per day did not maximize IOFC.
Intermediate levels of forage cost (Figure) and higher levels of total feed cost per cow per day resulted in both higher milk yield and higher IOFC, suggesting that a low feed cost alone did not ensure high net margins.
The researchers proposed that optimal ration formulation — rather than least-cost strategies — may be key to increasing milk yield and IOFC and that profit margin may be affected more by the quality of the feed than the cost (Buza et. al., 2014).
The Bottom Line
It is clear that forage management affects forage quality, forage inclusion levels, supplemental feed costs and intangible factors such as rumen health and function. Once forage genetics are chosen and planted, there are four major areas over which producers have some control in optimizing forage quality: (1) harvest maturity/moisture, (2) particle size, (3) storage/feedout and (4) nutritional profiling.
Pennsylvania State University research refutes the importance of feed cost per cow per day, with data showing that profit margins are affected more by the quality than the cost of the feed.
Bethard, G. 2012. Focus on margins, not ratios.
Buza, M.H., L.A. Holden, R.A. White and V.A. Ishler. 2014. Evaluating the effect of ration composition on income over feed cost and milk yield. J. Dairy Sci. 97:3073-3080.
Casper, D.P. 2008. Factors affecting feed efficiency of dairy cows. Proceedings of the Tri-State Dairy Nutrition Conference. April 22-23.
Casper, D.P., L.A. Whitlock, D. Schauff, D. Jones, D. Spangler and G. Ayangbile. 2004. Feed efficiency is driven by dry matter digestibility. J. Dairy Sci. 87(Suppl. 1):462(abstr.).
Erdman, R. 2011. Monitoring feed efficiency in dairy cows using fat-corrected milk per unit of dry matter intake.
Hutjens, M.F. 2004. Feed efficiency and profitability.
Ishler, V., T. Beck, K. Bailey, E. Cowan and K. Dickson. 2013. Penn State income over feed cost tool. Accessed Feb. 20, 2014.
Originally published in the June 2014 Feedstuffs issue. Reproduced with permission.