Do You Know Your Income Over Feed Costs?

Posted: January 9, 2005

The 2005 harvest season for haycrop forage is starting off dry in many areas of Pennsylvania.

Are you thinking about the ramifications if the dry weather carries through the summer? Last year forages were abundant and low quality, this year is starting off to be the opposite. Different feeding strategies will need consideration to compensate for the possible lower forage inventory and the incorporation of forage extenders. Since controlling feed expenses is critical to operating a profitable dairy business, all dairy owners and managers should know the answers to the following questions:

1. What is the feed cost per lactating cow per day? 2. What is the milk income per cow (or per cwt)? 3. What are the benchmarks for income over feed cost (IOFC)?

To answer the first question, feed cost per cow, it is necessary to include costs of forages and all concentrate ingredients being fed. Typically, the most difficult aspect of calculating feed cost is assigning a price to home grown forages. When actual costs associated with raising home grown forages are not readily available, market prices can be used. The following web page contains updated monthly forage and feed prices . Currently, feed cost per cow per day could range from $3.30/cow to over $4.00.

To answer the second question, milk income per cow (or per cwt) is probably easier to answer, since producers see this value monthly in their milk check. If the current gross milk price is $16.00/cwt and the herd’s average milk production is 80 pounds, the average milk income per cow per day is $12.80. With the answers to questions 1 and 2, IOFC can be calculated. With the values used in the above examples, IOFC could range from $9.50 to $8.80, depending on the feed cost per cow. If milk production averaged 60 pounds, milk income would be $9.60 per cow. The IOFC for the herd, using similar feed costs, could range from $6.30 to $5.60.

The benchmarks for IOFC are $5.00 to $5.50, with the leaders in the dairy industry striving for greater than $7.00. A goal of $6.00 and higher is achievable and realistic. These benchmarks are based on an average gross milk price per cwt of $13.50 to $14.50. As milk price increases, so should IOFC.

Right now is a good time for producers to make money. Feed costs have been reasonable and milk income decent. However, this is not always the case. Back in the summer of 2002, milk prices dropped dramatically and feed prices increased. On an average milk production of 80 pounds, IOFC fell below $5.00 on many farms. Monitoring IOFC on a monthly basis can help in managing price risks associated with milk price and feed costs. It helps owners and managers make informed decisions on feeding strategies and determining what works best for an individual’s dairy operation.

More information on feed related benchmarks can be found in the Penn State publication “Analyzing Your Dairy Business: A Systematic Approach to Using Benchmarks. Contact Dairy Alliance at 1-888-373-7232 for a copy.

Virginia Ishler, Extension Associate
Penn State Dairy Alliance, Nutrient Management and Penn State University Dairy Unit Manager
Dairy Alliance is a Penn State Cooperative Extension Initiative