For years, dairy producers have been chasing that elusive figure encompassing all that relates to profitability — the margin. With feed usually being the largest expense on a dairy farm, one of the greatest factors in determining a dairy’s profitability is the ability to manage feed costs effectively.
Dairy producers have a number of choices when it comes to feeding cattle. The variety of production systems make it difficult for any one farm to truly know the cost to feed its herd when basing prices solely on the prevailing market. Though analysts do a reasonable job approximating the market costs for feedstuffs like corn silage and alfalfa haylage, actual producer costs can vary greatly within the same state. For this reason, it pays to know the true costs to produce the crops fed on the dairy farm.
Penn State Extension has developed programs to help producers in the Northeast determine the costs to grow their home-raised feeds and use those costs to define the true break-even milk margin on a dairy. Breaking down crop costs on a per unit or per acre basis can help producers determine which crops to grow in a particular year, the benefits of producing one crop over another and how to best match a cropping plan to the herd’s rations. By determining what the cows eat in a given year, a producer can then determine how many acres and how much tonnage he or she needs to grow sufficient feed for the dairy.
Though most farms adhere to nutritionists’ guidelines for the nutrient requirements for their herds, each farm has a different set of resources to meet the cows’ needs. Land availability and soil fertility are major factors, as well as capital resources, feed storage and labor that defines how much feed can be produced on the farm and the feed quality. Ideally, each farm must create its own plan for a cropping strategy that will maximize high quality feedstuffs and minimize purchased feed.
To calculate the cost of home-raised feeds, first determine harvest numbers to estimate future yield. Tremendous technology exists today to help farmers track yields as crops are harvested and inventories as they leave silos and head to the feed alleys or bunks. However, for producers working on a smaller scale, keeping track of these numbers can be tricky. Basic strategies such as writing down the number of bales harvested on a calendar or using a spreadsheet to calculate the volume in a particular silo can be a great first start. Once the yield per acre is calculated, the direct inputs costs are allocated for each crop. When bills for seed, fertilizer, chemicals and custom work come in, write a note either by hand or in the accounting software to keep track of where that seed or chemical went: onto which crop and on how many acres. That helps narrow down the input costs on each crop.
After determining the direct costs associated with each growing crop, overhead operating costs can be allocated to each crop as well. Working with an accountant, an Extension educator or other consultant can help bring all these figures into one cohesive picture. The Penn State Extension Know Your Numbers program helps calculate both the cost per acre and cost per ton to grow each individual crop.
Whether the crop will be fed on the farm or sold as a commodity, knowing the actual cost of production helps determine the value of that crop for both the break-even on the dairy and the contract sale price of a cash crop. According to Penn State nutrient management specialist Virginia Ishler, the 2013 market value of corn silage in Pennsylvania averaged $47.51 per ton but fluctuated greatly between regions, while the 132 farms participating in the Know Your Numbers program averaged $25.68 per ton to grow that silage for home feed, a $21.83 difference. In Table 1 below, on-farm corn silage production costs across 132 farms in Pennsylvania are distributed based on the yield per acre. Farms with less than 18 tons per acre yield had higher overall costs per ton than those with higher yields. Because the farms in this program are primarily dairy farms, manure application mitigates fertilizer costs. Additionally, land rent is an increasing factor in the costs of crop production. The farms in this program varied on average between $49 and $137 per acre with average land rent across all 132 farms being $107 per acre.
Knowing the cost of production for home-raised feeds does two things. The home-raised cost of production helps define the true cost of a cropping operation often overlooked on a dairy farm and also the actual cost of feed for the dairy herd can be determined by combining these home-raised feeds and additional purchased ingredients. In 2012, Pennsylvania dairies in the Know Your Numbers program averaged a projected $2.70 cost to produce a bushel of corn grain, while the statewide value of production was $7.60 per bushel (USDA, NASS 2013). In 2013, Pennsylvania dairies’ home-raised corn cost fell to $2.61 per bushel on average across the state. Moreover, the Pennsylvania cost of home-raised soybeans averaged $6.85 per bushel in 2012 and $6.47 in 2013 while the 2012 state value of production averaged $14.10 per bushel (USDA, NASS 2013). Tables 2 and 3 show the distribution of on-farm costs for corn grain and soybeans. As with the corn silage costs in Table 1, the use of manure from the dairy operation decreases the fertilizer costs, though land rents are still a factor. Average land rent for corn grain land was $79 per acre and $80 per acre for soybeans. As we compare the cost of our rations using home-raised feed costs with the market price for the same feeds, we often see a dramatic difference that carries over into the break-even milk margin and income over feed costs for our dairies.
Farmers rely on making the most of the resources available. This includes the land on which the farm is situated. The ability to produce home-raised feeds for the dairy can act as a buffer from ever-changing market feed prices. Being able to consistently produce sufficient forage and even corn grain to supply the dairy can reduce farmers’ risk of relying on purchased feed prices to supply the largest input on a dairy farm. Indeed, this simple tool can help a producer establish a comprehensive risk management strategy for purchasing feed and managing milk profit margins. Producers don’t have to manage these numbers alone — working with a trusted consultant can help bring these sometimes ambiguous numbers into focus.
Penn State Extension recently released CropCents — a free app available on iTunes for iPad and iPhone as a complement to the current DairyCents and DairyCentsPRO apps that allow producers and consultants to determine a farm’s income over feed costs. The CropCents app enables a producer or consultants to calculate the cost to produce home-raised feeds, which can then be used to help determine a farm’s individual income over feed costs number.
For more information on this and other resources from Penn State Extension, visit extension.psu.edu/dairy.
Editor’s note: Heather Weeks is a dairy profitability educator with Penn State Extension.