Feed planning for Profitability and Risk Reduction

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Usually the largest cash cost on a dairy farm is feed. So, you would expect that most dairy farmers manage their feed resources very closely, on a proactive rather than reactive way. Developing a feed plan/budget with your nutritionist is integral to this proactive approach. A feed plan involves a target production, nutrients required to achieve it as well as determining the margin over feed cost (MOFC). This article looks at the three steps necessary to achieve a successful feed budget, which will help to maximise MOFC and manage the risk associated to price volatility.

The first step is to develop a realistic and accurate feed plan to meet the cows’ requirements, according to a targeted production level so the MOFC is set. The second step is quoting and buying the necessary complementary and supplementary feeds with enough time to secure deliveries and the right prices on the purchased feeds. And third, but just as important, is to monitor the plan regularly. Let’s have a look at each of these steps in more detail.

Step 1: Feed plan and budgeting

This, in my opinion, is by far the most important step. Why? Because he who does not know where he is going, any road serves him. Having a destination helps you choose the best road to get there. Planning a feed budget is that exactly. It helps in many ways to define the profitability of the dairy business over a period of time. It is much more than just allocating expense values to purchased fodders and grains. It should be done on a weekly basis, even better still is to review each quarter, six-month period or the whole financial year.

To start a proper feed plan you need to determine what sort of production level you would like to achieve from the cows over a period of time, so the feeds and nutrient requirements can be calculated. Then estimate how much of the home-grown feed can fulfil those requirements. This is probably the most daunting part, it can be difficult to predict the amount of pasture availability and its quality over a long period of time. However, using past records and help from experienced advisers, this crucial step can be done in a relatively accurate way. The main objective here is to set a track, so you are able to make decisions faster when the course starts to change. We will go into more detail over this important point in step 3.

Once the home-grown feed is estimated, it then leaves us with a difference, the complementary and supplementary feeds that need to be purchased (imported) to achieve the targeted production and MOFC. Knowing beforehand how much purchased feed you need, gives you an enormous advantage in the next step.

Step 2: Buying complementary and supplementary feed

After calculating the amount and quality of the feed needed to achieve the production targets and estimating how much of that can be fulfilled with home-grown feeds, it gives you an idea how much feed needs to be purchased in the market. Also, knowing the milk price gives an estimate of how much are you willing to invest on this purchased feed, in order to attain the planned MOFC. Remember to keep these figures as real as possible so the plan is solid. Importantly, do not forget that feed quality is also a factor that will play a key role on the results, not just the price.

Buying the right feed for your farm can be difficult due to the significant variability in prices, quality and supply. However, when you have a clear and realistic feed plan for your business, it helps you choose wisely. In other words, when you know what you are looking for in the market, you have a better chance to get it. When price is the only driver, more often than not you get feeds that lack the nutrients that can potentially produce the MOFC you desire. It is advisable to find a supplier you trust so that they can fulfil your specific requirements. Chasing the lowest prices on the spot is a risky and time-consuming strategy and it leaves the success of your business at the mercy of the volatility of the market. That means you are not in control anymore. On the other hand, planning ahead and negotiating contracts with trusted suppliers gives you the control and the certainty that you will get the feed you need, what’s more at a price that will help towards your target MOFC, removing the volatility risks of the market.

Step 3: Matching what’s been planned and reality

What is the point of developing a good plan if you are not monitoring it frequently? If during the march you veer off track, you won’t get where you planned at the start. If it takes too much time to realise that you are off track, then it will take more time and potentially more cost to return the course. The key is to monitor periodically, monthly at least, that everything is going according to plan. Monitoring the cows’ production only is not enough. Feed inventories, feed quality and feed usage also need to be monitored with the same frequency to make sure the plan is on track. This part can become demanding especially if things are not going according to plan. A good feed plan developed with the assistance of your nutritionist can be the best thing you can do to improve your cash flow, profitability and lifestyle.

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