By Virginia A. Ishler
Feed prices are rising at an alarming rate. It is difficult to predict how long they will persist but 2021 is beginning to mimic 2012 when corn and soybeans reached unprecedented highs. The other challenge is milk price is not keeping pace with the high feed prices, which is eroding away the margin. The Extension Dairy Team has a simple tool that calculates the maximum milk cow feed cost the dairy operation can withstand based on their financials. Using farm financial data from 2020 and projecting costs into 2021, most operations will be extremely vulnerable to maintaining a positive cash flow, especially if high feed prices continue.
Table 1 examines three cash flow groups from the Dairy Business Management Team’s 2020 summary report where the breakeven cost of production ranged from $17 to $21/cwt. The maximum milk cow feed cost was estimated by assuming an average gross milk price of $18/cwt for 2021. The farms with cost of production close to $17/cwt have maneuvering room with a maximum feed cost of $7.09/milk cow/day on a cost basis. Not knowing what weather conditions may occur come spring and summer, these operations are positioned to handle negative impacts to feed inventory or quality while maintaining a positive cash flow.
Operations with cost of production exceeding $19/cwt will have an uphill challenge in keeping feed costs below their projected maximum. If these operations have to purchase additional forage as well as pay for higher priced commodities, they will easily exceed their maximum feed cost. This could be further compounded if their annual production decreases. Even using the dairy’s cost numbers for home-raised forages and grains, most operations exceed $5.50/milk cow/day when feed costs are more reasonable.
The one consistent message about the dairy industry is the unpredictability of the milk and feed markets. Figure 1 illustrates how the middle cash flow group from Table 1 ($19.50 cost of production) would be impacted by changes in milk price and production. For example, if the 2021 gross milk price ends up being $17/cwt and milk production remains at 70 pounds, then the maximum milk cow feed cost is $4.66 to breakeven. If heat stress is an issue for 2021 and the herd would drop to 68 pounds of milk for the year, the average gross milk price needed would be $18.50/cwt to avoid exceeding their maximum feed cost. This information is invaluable when making decisions and evaluating strategies to improve cash flow.
Now is the time to evaluate actual financials for 2020 and plan for 2021 figuring in expected high feed expenses. Working with a nutritionist to evaluate options to controlling costs while not jeopardizing animal performance can help keep the dairy operation afloat during these tumultuous times.
Table 1. Maximum milk cow feed cost planned for 2021.
|Average gross milk price breakeven/cwt in 2020||$17.00||$19.50||$21.00|
|Average number of milk cows||236||115||185|
|Average milk production (lbs.) in 2020||77||70||75|
|Maximum milk cow feed cost/cow/day (actual costs) with 2021 planned milk price of $18/cwt||$7.09||$5.36||$5.18|
Source: Penn State Extension Dairy Business Management Team 2020 Summary Report (63 farms).
Figure 1. Maximum feed cost per lactating cow per day with changes in milk price and production
Monitoring must include an economic component to determine if a management strategy is working or not. For the lactating cows, income over feed cost is a good way to check that feed costs are in line for the level of milk production. Starting with July 2014's milk price, income over feed cost was calculated using average intake and production for the last six years from the Penn State dairy herd. The ration contained 63% forage consisting of corn silage, haylage, and hay. The concentrate portion included corn grain, candy meal, sugar, canola meal, roasted soybeans, Optigen, and a mineral vitamin mix. All market prices were used.
Also included are the feed costs for dry cows, springing heifers, pregnant heifers, and growing heifers. The rations reflect what has been fed to these animal groups at the Penn State dairy herd. All market prices were used.
Figure 2. Income over feed cost using standardized rations and production data from the Penn State dairy herd.
Note: February's Penn State milk price: $17.56/cwt; feed cost/cow: $8.50; average milk production: 85 lbs.
Figure 3. Feed cost/non-lactating animal/day.
Source : psu.edu