5 August 2008

4 minute read

J.W. Schroeder, Dairy Specialist from North Dakota State University Extension Service.

So you might ask: "How do you attempt to evaluate alternative feedstuffs?"

Here are some recommendations from Normand St-Pierre of Ohio State University and Joanna Knapp of Fox Hollow Consulting, who have written articles on the economics of making nutritional decisions during volatile feed prices.

A simple approach to evaluating feedstuffs is to compare their cost per unit of energy and protein. Energy can be based on total digestible nutrients (TDN) or net energy for lactation. Traditionally, prices per unit of energy and crude protein (CP) were based on the cost of corn and soybean meal, respectively.

This approach first was proposed by William E. Petersen in the Journal of Dairy Science in 1932 and since has been found in most applied nutrition books, such as that of Frank B. Morrison, (Feeds and Feeding, 1956). They all assume these two feeds are perfectly priced. That is, their selling prices are always equal to the economic value of their nutrients. But this assumption doesn't make much economic sense because it would imply perfect and efficient markets. That this doesn’t hold true has been very evident with the current erratic grain and protein prices. The simple energy/protein approach also ignores other nutrients that are important in ruminant nutrition.

Additional approaches have been developed to include consideration of multiple nutrients. Increasing nutritional costs are captured in the software FEEDVAL (University of Wisconsin, 1997), which evaluates feedstuffs based on CP, TDN, calcium and phosphorus using four reference feedstuffs. Earlier versions also have allowed evaluations based on rumen undegradable protein (RUP). Because the reference feedstuff for energy is shelled corn, the value of energy predicted by this program will be high when corn prices are high. Fundamentally, the approach is nothing more than an expansion of the Petersen method to include more than two nutrients and, thus, suffers the same limitations.

More recently, a method that uses prices and nutritional composition from all feedstuffs traded in a given market has been developed by St-Pierre using a multiple regression approach to create as many equations as there are feedstuffs. Estimates of unit costs for each important nutrient are obtained by least-squares. The resulting software, Sesame III, is a Windows-based program and is available at http://www.sesamesoft.com.

This program uses a multiple regression approach to estimate break-even prices of a set of feedstuffs based on nutrient contents and market prices. Consequently, it can be used to determine the relative price of individual feedstuffs within a defined market area. The cost of a unit of a given nutrient - for example, net energy for lactation or RUP - also is estimated.

Using the Sesame program, researchers compared the prevailing nutrient costs from 2004, when grains and protein prices were relatively in equilibrium, to the prevailing costs during January 2008, after the onset of the corn ethanol euphoria. Costs reported here were for central Ohio, where the authors have access to accurate feed market information. These costs, as well as feed availability, would be different in your feed markets, but the analysis would be identical, yielding similar results.

Their cost per megacalorie (Mcal) of net energy for lactation in the eastern Midwest increased by nearly 60 percent during the three-year period, going from $0.087 to nearly $0.136/Mcal. To put this substantial increase in perspective, the unit cost of net energy for lactation averaged $0.07/Mcal during the 15-year period that extended from 1982 to 1997 and never exceeded $0.10/Mcal during this same 15-year period. So, the current price for dietary energy resides in completely unchartered territory.

Meanwhile, the cost per unit of rumen degradable protein (RDP) dropped by $0.12/pound between summer 2004 and winter 2008. During that same period, digestible rumen undegradable protein (d-RUP), noneffective NDF and effective NDF unit costs increased by $0.04, $0.02 and $0.07/pound, respectively. Thus, although the price of soybean meal appears to be high from a historical perspective, this doesn’t imply that the prices of protein fractions (RDP and d-RUP) are also high. In fact, once the authors accounted for the increased economic value of the dietary energy contained in the protein feeds, many of the feeds were underpriced.

The comparison of the economic value of different commodities being traded in the Midwest yields some interesting and even surprising results. What is easily overlooked is the drastic rise in the price of many other energy feeds in the last three years, such as tallow, which now is trading at nearly twice its 2004 price. During this period, however, some feeds, mostly corn byproduct feeds, have remained well-priced.