Margin Over Feed - Is it more useful than price per Ton in the dairy industry?

In reality, it is the margin over feed that should drive the decision to increase or reduce the price of feed per ton, rather than the cost per ton of feed alone. The reason for this is that the margin is what drives profit, while cost does not always accurately reflect production potential. Cost per ton can fluctuate depending on the availability of raw materials, the international market and even the diesel price.

Yet, even when taking all those factors into account, the difference between a R5500.00/ton meal and a R4500.00/ton meal is more than likely due to the nutritional value of the meal. This is because all meals are influenced by those external factors – the international market, availability of raw materials, etc., with some only slightly more than others, due to the inclusion levels of specific raw materials.

A general rule of thumb when trying to decide whether to increase or decrease the cost of feed per ton is to assess how much milk you need to lose or gain to cover the difference. For example, when deciding whether or not to decrease feed cost per ton, use the following equation to determine the breakeven on lost liters.
 

 Figure 1: Comparison of cow milk production economics under current and decreased meal cost scenarios

The difference between the two scenarios is 19 liters per cow per day and 18.5 liters per cow per day. Therefore, if you lose more than 500 mL per cow per day, you are making less margin than if you had stayed on the more expensive meal.

To determine how much milk production you need to gain when increasing the cost per ton, the following equation applies.

 Figure 2: Impact of increased meal cost on cow milk production and required output to maintain profit margin.

 
In this case, an additional 400 mL/cow/day is required to cover the increase in cost per ton. While it is easy to lose milk when moving down to a lower level meal, it is equally as easy to improve milk production by using a higher spec’d ration. Good nutrition can also positively impact fertility, immunity and reduce costs spent to correct those factors elsewhere. On the other hand, poor nutrition can negatively affect those same factors and quickly cause chaos on-farm.

When looking at both of these equations, it is surprising how fast the margin can be lost. This effect can be compounded if rations are changed at the wrong time, such as when early-in-milk or around peak production, as every liter that a cow makes above peak production is worth an estimated extra 100+ liters in the lactation.

With so many voices and opinions out there on how to choose a good dairy meal, it is important to remember that when under financial pressure, there is no use in saving yourself into bankruptcy. Properly fed and managed cows produce to their genetic potential, and milk in the tank is what drives profit.

Contact your local De Heus technical advisor to assist with Margin Over Feed queries - https:// www.deheus.co.za/meet-our-team/.