Anticipated lower income over feed costs ahead

We just recently set our clocks forward by one hour and we are still adjusting to this time change relative to the later time for dawn but the longer daylight in the evening. In actual reality, many of us did not change our timepiece forward by one hour because it occurred automatically for us.

However, this automatic adjustment does not occur in our financial management of dairy farms. Feed costs often make up about 50% of the cost of milk production, thus we need to monitor it closely as it has a major impact on the profitability of a dairy farm.

During the past three years, feed costs have steadily creeped upward with a peak of $15.53/cwt in April 2022. At this point in the year, feed costs accounted for approximately 63% of the uniform milk price for the Midwest region. Feed costs have gradually declined since April 2022, with the anticipation that feed costs will be about $13.64/cwt in September 2023, $1.13/cwt lower than in September 2022.

This is a positive indicator for a reduction in the cost of production; however, milk price is expected to decline during the same time period to a greater magnitude than feed costs. The uniform milk price for dairy farms in the upper Midwest was already $5.66/cwt lower in January than the high in May 2022. The decline in milk prices is expected to continue over the next several months; therefore, erosion of income of feed costs is anticipated to over the next several months.

Given the aforementioned conditions, various management aspects should be practiced to control feed costs as milk price softens:

1. As we begin the 2023 forage harvest season, harvesting high-quality forage is going to be very important for increasing milk and milk component yields and reducing purchased feed costs.
2. Work with your nutritionist for identifying ways to improve feed utilization without adding more costs.
3. Work with your feed supplier in how to take advantage of feed price discounts.
4. Consider contracting for feed ingredients that you know will remain a staple in your rations or those that are presently at good prices relative to other ingredients.
5. Reduce feed shrinkage on the farm, especially focusing on loss due to poor storage conditions, too many bunk refusals, handling losses, etc.
6. For those farms with only a single TMR, consider feeding multiple TMR so rations can be formulated to achieve higher production without overfeeding the late lactation cows. With this approach, you can also target feed additives to the groups of cows that most likely will benefit from their inclusion.
7. Avoid keeping cows with long dry periods.
8. Manage the heifer inventory whereby you keep the best and sell the rest and sell them early in life for the most effective return on investment.

As we look ahead over the next several months, the volatility of feed costs and milk price will remain. Feed prices are going to be impacted by growing conditions, world trade and other influences on supply and demand. Early quarter 2023 shows increased culling of dairy cattle, but also strengthening heifer prices. Thus overall, national numbers of dairy cattle may remain stable. Even with the culling rate in early 2023, January milk production was 1.5% higher than the same time period in 2022.

With milk production expected to be higher in 2023 than 2022, heavy cheese stocks, and uncertainty in world trade on the demand side, milk prices are expected to be volatile but lower as mentioned previously. Springing forward with management practices now to deal with these changes can have positive impacts on profitability.