Feed costs tend to be the largest expense on a dairy operation and managing those costs contributes to a dairy’s ability to be profitable.

These costs include purchased feed, but also the true costs to produce crops raised on the farm. Home-raised feeds vary in type, quality, and quantity, but more importantly the cost to produce a given feedstuff is unique to each individual operation. Planning and tracking the costs associated with home-raised feeds is an often overlooked aspect of the farm business that is integral to profitability.

Variations in soil fertility, available acreage, equipment, storage, and labor are some of the larger factors contributing to how much and of what quality feed is produced on the farm. Such diversity means each farm should create and evaluate cropping strategies to strike the right balance of quality and quantity. Knowing the costs associated with those feeds is an integral part of that cropping strategy. Specific steps in determining home-raised feed costs were outlined in a previous article, The Crop Costs Conversation (Beck, 2014). The article addressed determining crop inventories, estimating direct and overhead costs, and comparing to market values. It recommended that crop expenses such as seed, fertilizer, and chemical be identified with a specific crop. Keeping track of the crop acres each expense applies to will increase the accuracy of calculating the direct costs and planning future costs based on the previous year.

The following tables illustrate the planned costs by harvest yield group for three major commodities: corn silage, corn grain, and soybeans. This represents 104 farms that participated in the 2016 Penn State Extension “Know Your Numbers” program. This program is designed to assist producers with calculating their crop costs and estimating their annual breakeven costs for the dairy enterprise and whole farm. For 2016, the 100 farms producing corn silage had average estimates of $23.04/ton. According to the monthly Penn State Feed Price List authored by Virginia Ishler, Penn State Extension Dairy Specialist, the average market value for corn silage in the first half of 2016 was $48.48. It is important to note that this average is a statewide average, and values fluctuate between regions. Regardless of region, average home-raised costs tend to be lower than the market value.

Table 1. Projected Farm Costs of Corn Silage in Pennsylvania 2016 (100 farms).

Table 2. Projected Farm Costs of Corn Grain in Pennsylvania 2016 (60 farms).

Table 3. Projected Farm Costs of Soybeans in Pennsylvania 2016 (29 farms).

For each of the planned costs there is an interesting trend. Farms with lower yields averaged lower per acre costs but higher costs per unit of feed. Conversely, farms with higher yields had greater costs per acre but realized lower costs per unit of feed. Given that yields are subject to a variety of factors, it is vital that tracking costs goes beyond the calculation per acre. Examining the home-raised feeds’ unit costs helps determine if inputs are in line with outputs.

Given the influence of yield on home-raised crop costs, it’s important to estimate what the costs are and follow up by evaluating actual costs once yield estimates are finalized. A subset of 45 “Know Your Numbers” farm participants provided annual actual costs that were compared back to their planned costs. Figure 1 presents planned total home-raised feed costs per cwt versus the year-end actual total home-raised feed costs per cwt. The planned estimates were adjusted to account for cow number and milk production differences as compared to the year-end actual. There were a few farms where the plan was nearly identical to the year-end actual. On average, most planned costs were lower than the actual home-raised feed costs the farm reported. Having detailed expense records by crop combined with acres harvested and yields by crop will improve the accuracy of both planned and actual crop costs and the home-raised feed costs.

Figure 1. 2013-2015 Planned vs. actual total home-raised feed costs on 45 PA farms.

Dairy farms have a unique combination of resources and limitations to ensure their farm is profitable. To buffer market volatility, controlling home-raised feed costs by estimating expenses, determining actual costs, and monitoring both feed quality and quantity are needed. Penn State Extension has tools and programs available to help producers and their advisors get started. The “Know Your Numbers“ cash flow program is one method, and there is the newly revised CropCents mobile app. This application (available regardless of mobile or computer platform) allows producers to enter their direct crop expenses as well as partition operating expenses to all the crops produced on the farm, resulting in estimates of yields and costs per unit. Producers can determine the yields based on common units for each commodity.

Source – Pen State Animal Science