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1209 PD: How to evaluate a nutritional strategy to maximize cash flow

Rod Martin Published on 05 August 2009

Feed expenditures are the single-largest operating expense, accounting for 45 to 50 percent of total production costs in your dairy business.

Feed costs need to be closely monitored at all times so it is essential to understand the relationship between feed costs and milk production. The goal of every dairy is to identify the optimal point at which you can minimize feed costs but still maintain optimal productivity. This is the point that will maximize your income-over-feed costs (IOFC) See Figure 1*

Remember, milk production is the economic engine that generates the cash flow in your dairy business, so saving 10 cents in feed costs but losing 20 cents in productivity is not a good economic decision. Conversely, saving 10 cents in feed costs but increasing 20 cents in productivity is a great economic decision.

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During these current economic times, it is mandatory to continually evaluate on-farm nutritional strategies in order to determine if any potential change(s) can improve the dairy’s cash flow. Take this opportunity to work with your nutritional consultant to review and fine-tune your feeding program. Develop your list of potential changes, evaluate the positives and negatives of each potential change and then prioritize which nutritional change(s) will have the largest effect on improving your cash flow. In some cases, no change(s) will be made, but in other cases significant change(s) can be made, resulting in the optimal point of maximizing income-over-feed costs.

Figure 2* provides a step-by-step process that will allow you to evaluate your feeding program and assist you in making the right nutritional decisions that will maximize your income-over-feed costs.

Establish forage & grain inventory
Maximizing the use of high-quality, home-grown feeds is critical in order to minimize off-the-farm feed costs and maximize milk production. High-quality forage is key here. Accurate accounting of your inventory is an important first step to determine what feeds and ratios of feeds can be fed.

Forage & grain allocation
If you are going to be inventory short, you then will need to evaluate which forage and/or grain extender will be needed to stretch out your feed supply. Conversely, if you are going to be inventory long, be sure to maximize the use of your home- grown feeds. If you are inventory long on haylage, consider allocating a higher haylage diet in order to reduce your supplemental protein costs as long as you do not have to buy additional grain to supplement the higher haylage diet. The one caveat is that you never want to give up milk production or other economic parameters when implementing these different feeding options on your dairy.

Byproduct evaluation
Whether you are in need of a forage and/or grain extender, or just need an economical protein/energy source, careful byproduct evaluation is an important next step in maximizing your income-over-feed costs. There are many byproduct options that can reduce feed costs and increase milk production. Economic evaluation is only part of the decision process. In addition, product consistency and availability, handling characteristics, storage and shrink issues and product performance also need to be considered. For example, you can have a byproduct that shows 10 cents per head per daily cost savings on paper, but this byproduct may have a high shrink potential and inconsistent availability, which may result in an overall negative economic decision.

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Ration fundamentals
Once you have determined the feeding rates and ratios of the forage sources, grain sources and byproduct feeds, you then can fine-tune your ration. Accuracy in dry matter intakes and feed analysis is the first step in this process. Dietary evaluation of the higher-cost nutrients needs to be the first priority – specifically protein, fat and phosphorus. In many cases, lowering some or all of these nutrients can result in cost savings without affecting milk production, which in turn leads to higher income-over-feed costs. However, this process can be difficult since the lag in cow response will dictate whether or not you made the correct decision. For example, lowering fat levels in the diet can reduce feed costs. If subsequent reproduction and/or feed efficiency is negatively affected even though milk production was maintained, then the decision to lower fat in the diet was most likely not a good economic decision. Proceed carefully in this area, make changes slowly and monitor response. Remember, the cow is always right!

Feed additive analysis
Feed additives are group-fed ingredients that may provide a positive animal response above and beyond the role of the required nutrients. There are many excellent feed additives available for specific situations that can increase your income-over-feed costs. It is important to evaluate, prioritize and target the right feed additives to the right situation in order to maximize your response. Determine your feed additive investment and calculate what type of response you will need to have to achieve a 2-to-1 ratio return on your investment. In addition, you can increase your financial payback by targeting certain groups such as early lactation cows that may have the most potential benefit from certain feed additives. A two-group TMR feeding system will give you more flexibility in targeting early lactation cows compared to a one-group TMR system.

Once you have gone through this process and have the feeding program set, now it is time to monitor production, components, herd health and feed efficiency. The response by your dairy herd in these key areas will determine your income-over-feed costs and ultimately the dollar margin your business has available to pay for your fixed and variable costs.

Determining the optimal point at which you can minimize feed costs, but still maintain high-value milk production, is critical for your success. This article discussed in detail the process to evaluate your feed costs and strategies to increase your income-over-feed costs. It is important to mention that the feed program is only one piece of the management puzzle that can affect your cash flow. Excellent management such as cow comfort, high-quality forages, parlor management, transition management, foot health, bunk management, herd health protocols, etc. are mandatory in order to realize the true production potential of your feeding program, allowing you to maximize your cash flow. PD

*Figure omitted but are available upon request at

Martin is a nutritionist with Vita Plus Technical Services. He can be reached at

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