Dairy Excel/Channel: Should I buy my feed or grow my own?

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“Should I buy all my feed or raise my own forages and grain?”

I have been asked this question dozens of times over the years. I used to answer something like, “Well, that depends on how good a job you are doing in producing forage and grain. We need to analyze your cropping operation and find out.”

More recently, my answer has been: “You probably can’t produce grain as cheaply as your neighbor who specializes in grain production. Plus, I’ll bet you can’t produce it at a lower cost than the current market price by the time you figure in your labor, machinery and land costs. You would probably be better off to purchase the grain you need at harvest time, or contract with that neighbor to lock in a price for the grain you need”

What about forages? Forages are a slightly different story because these feeds are bulky and quality (as determined by stage of maturity at cutting, harvest management and other factors) is very important in establishing the feeding value and cash value of these feeds.

Still, there are lots of dairy managers who are contracting to purchase all their feedstuffs from various sources so they can concentrate on managing dairy cows while letting someone else concentrate on managing crops. They include terms in the contract to ensure they get the quality and quantity of feeds they need.

In cases of disputes, it usually takes only one rejected load of feed to send the message that you want and will insist on the quality specified in the contract.

Who’s in charge. Of course, many farm operations are large enough to be able to divide responsibilities among the management team to accomplish the same goal (providing adequate quantities of high quality, competitively priced feeds for all animal groups) within a single business entity.

Even in cases where the entire management team is family, dividing up responsibilities (and authority) for the management of various profit centers or enterprises (crop/feed production, heifer production, milking herd) within the business can be a very effective way to ensure that all parts of the business are managed well.

High overhead. Equipment cost is a major factor in this discussion of feed quality and cost.

Combines and big choppers are so expensive today that it is difficult to justify owning them, except on the largest dairy farms. So, even if you decide to continue to produce your own grain and forage crops for the dairy, you should seriously consider hiring custom operators or trusted neighbors to handle the harvesting of these crops. It’s a good deal for both of you. You don’t have the expense and maintenance of these machines. Meanwhile, your neighbor can generate additional income from the machine to help cover the costs of ownership and maintenance.

You also get the operator with the machine, which cuts down on your labor costs for harvesting. You might even consider hiring your neighbor to plant and spray the crops, too.

Cornell study. The 2000 New York State Business Summary included a study of 22 farms that purchased the majority of their feeds, including all forages. Less than 10 acres of crops were harvested by the average farm in this group.

These farms’ income and expenses were then compared to those of 56 farms of similar size that grew their own forages.

In 2000, the 22 farms buying forages averaged a higher rate of return on all capital investment by shipping more milk per cow with less capital investment while maintaining similar operating costs to those farms growing their own forages.

The 1999 Cornell study provides even more convincing evidence.

Get it in writing. Keep in mind that grain and forage prices vary considerably from year to year, which can dramatically affect the financial outcome of these alternatives. Written contracts can go a long way to offset these fluctuations in purchased feed costs. OSU Extension can help you with example contracts that can serve as a starting point in negotiating with custom growers and custom harvesters.

When it comes time to replace crop equipment, you owe it to yourself to explore the option of letting someone else produce your feed.

(The author is an agricultural extension agent in Columbiana County. Questions or comments can be sent in care of Farm and Dairy, P.O. Box 38, Salem, OH 44460.)

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