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Virginia Cooperative Extension - Knowledge for the CommonWealth

Are you maximizing income over feed costs?

Dairy Pipeline: August/September 2006

John Welsh
Extension Agent, Rockingham County
(540) 564-3080;

It is well known that feed represents the largest expense to dairy businesses. Therefore, it stands to reason that controlling feed expenses is critical to profitable operation. The two most common feed efficiency indicators are income over feed cost and feed cost per cwt. Income over feed cost (IOFC) is arguably the most important measure of the economic efficiency of feeding your dairy herd. The variables of this equation are feed costs, milk production and milk price. Simply put, you subtract the feed cost per cow per day from the milk income per cow per day. Using a benchmark of $13.50/ cwt of milk, an IOFC of $6 or higher is a reasonable goal.

Feed cost per cwt is a measure more commonly used. A dairyman is more likely to know this figure as it generally shows up on his ration sheet. Monitoring feed cost per cwt provides a standardized figure to compare the effectiveness of feed cost control. A feed cost per cwt of less than $5 is considered good.

So which measure should you use? Minimizing feed costs does not necessarily maximize profits. Many of us have pondered the question “Am I swapping nickels?” with respect to chasing production by increasing feed levels. The answer, of course, is “It depends”. The goal is to feed higher levels of feed only to the point that it continues to generate additional income. Below is an example from Penn State illustrating the difference between maximizing IOFC and minimizing feed cost per cwt.

  Herd A Herd B
Daily milk production 85 lbs 75 lbs
Feed cost/cow/day $4.15 $3.25
Feed cost/cwt milk $4.88 $4.33
Income over feed cost $7.33 $6.88
Gross milk price $13.50 $13.50
Gain in profit from maximizing IOFC $0.45 $0.00

Although herd B has a lower feed cost/cwt milk, the owners are realizing $0.45 less IOFC/cow/ day than herd A. On a 100 cow dairy that would be a gain of $16,425 over 1 year’s time.

I will admit that I am as complacent as anyone when it comes to regular monitoring of feed cost efficiency. It is fairly easy to stick with the current ration when milk production and feed costs are stable. The only way to know if you are maximizing income over feed costs is to monitor it regularly.

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