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What does feed cost per hundredweight mean?

David W. LaCount, Ph.D., PAS, Land O’Lakes

As milk prices have dropped and profit margins are tightening, dairy producers are scrutinizing costs more closely. In addition, benchmark production costs are reported by many organizations and publicized in trade magazines. Benchmarks seem like an excellent method of tracking how your operation is performing against the average operation. However, you need to be careful interpreting such numbers.

Consider the following production costs for hypothetical producers. Based on purchased feed cost per hundredweight, which producer is most profitable?

Table 1. Purchased feed cost, $/cwt.

Producer A 3.60

Producer B 3.25

Producer C 2.75

Producer D 2.23

Based on the purchased feed costs for each producer shown in Table 1, you would conclude that Producer D is most profitable because the purchased feed cost/hundredweight is lowest for that producer. You also would conclude that producers A and B are paying too much for their feed and you may even think that they should look for another feed supplier. However, before we jump to those conclusions, there are some other very important questions to answer.

Questions you should ask when presented with benchmark data are the following:

1. Does the feed cost per hundredweight include heifers?

2. What is the fat and true protein content of the milk from each herd?

3. What is the cull rate of each herd?

4. Are there home grown protein sources?

5. What is forage quality?

6. What is moisture content of the high moisture corn?

Why are these questions important? Obviously, if heifers are included in purchased feed cost per hundredweight, feed cost will be higher than if heifers are not included. The component content of the milk is important. If a producer is feeding for high fat and true protein content, it will cost more, but it also will result in a higher pay price per hundredweight of milk. Cull rate is important because cows can be fed cheaply by pouring the corn to them, but if it results in laminitis and metabolic problems that increase the cull rate, the feeding program was not cheap. Forage quality is a critical factor in determining purchased feed cost. If forages are high in fiber and their level in the diet needs to be reduced to stimulate greater dry matter intake, purchased feed costs will increase. If homegrown soybeans are utilized in the ration, purchased feed cost will be reduced because technically this is not a purchased input. In addition, moisture content of high moisture corn will have a direct effect on purchased feed cost if the corn is too dry and needs to be supplemented with either fine ground corn or corn starch. Table 2 details the operations of the four producers whose purchased feed cost per hundredweight of milk was shown in Table 1. When all the data is available, identifying the most profitable producer is much less clear. For example, feed costs for Producer A included cows and heifers. In addition, producer A had poor quality haylage and dry high moisture corn which required additional soy hulls and starch. While the addition of these ingredients increased purchased feed costs, their inclusion was justified because the milk yield response to both additions was greater than feed cost.

Feed cost/hundredweight for Producer B also included cows and heifers. While producer B had the second highest purchased feed costs, the producer also had the highest milk components and the lowest cull rate.

Producer C had the second lowest feed cost, but his costs only included the cows. High moisture corn was dry, so some additional cornstarch was fed that increased purchased feed cost. In addition, milk true protein was relatively low and the cull rate was high.

Producer D, who on first glance looks to be the most profitable producer calculated costs only for milk cows. Producer D had the lowest component content and the highest cull rate. In addition, producer D utilized on farm soybeans and because the market was low fed 6 pounds of raw soybeans.

Table 2. Operation characteristics of each farm.

Producer A B C D Purchased Feed, $/cwt. 3.60 3.35 2.75 2.13

Cows only X X

Cows and heifers X X

Milk fat, % 3.50 3.80 3.70 3.30

Milk true protein, % 2.95 3.10 2.80 2.80

Cull rate 30% 20% 40% 40%

Farm grown soy beans X

Haylage RFV 105 145 135 140

High moisture corn, DM 80 70 80 68

When all of the data is evaluated, which producer is most profitable? Not enough data is available to clearly determine which producer is most profitable. It is clear that the initial assumption that Producer D who had lowest purchased feed cost per hundredweight is probably not the most profitable due to low components, high cull rate and utilization of farm-grown soybeans.

Producer A, who has the highest purchased feed cost made the right decision because the marginal return on the corn starch and soy hulls was greater than the investment. This producer needs to focus on harvesting higher quality forage and corn at the proper moisture in the future to reduce his purchased feed cost.

Finally, producer B probably is the most profitable producer because his costs include both cows and heifers and milk components are high and cull rate is low. The higher components result in higher pay price per hundredweight of milk and the low cull rate should result in additional revenue from decreased replacement costs because fewer heifers need to be raised.

When comparing your operation to benchmark values for cost of production, make sure you know what you are being compared against. The lowest purchased feed cost per hundredweight of milk may not be the most profitable. On the other hand, if your purchased feed costs are high, just because you can explain why they are high will not improve profitability. If your purchased feed cost are high, you may need to reevaluate your forage program and determine whether harvesting higher quality forage would allow you to reduce the amount of purchased components.