Anyone who has taken a managerial economics class knows all about using profit maximization models to determine the investment and output levels that return the greatest profit. A profit maximization model for dairy rations requires an algorithm using a production function between net energy intake and milk production. This function increases at a decreasing rate.
The dairy maximizes profit by operating where marginal revenue equals marginal costs.
Up to a certain point (depending on the price of milk and the price of feed), the cost of providing additional feed units is more than offset by the revenues derived by the extra milk produced from the larger quantities of feed consumed.
At some point, however, the increase in milk production per unit of extra energy provided begins to decline. Eventually, the cost of providing the extra energy will equal the revenues of the additional milk generated, maximizing profit.
This is the most essential element of a ration formulation model: The point on the milk response curve where the value of the next unit of milk equals the cost of energy needed to produce it.
The use of this model may not always result in maximum milk production because the formula instead optimizes for the maximum difference between total revenues (milk quantity x milk price) and total feed costs (feed quantity x feed price).
However, in the practical sense, where more energy is apportioned to milk production, not reaching maximum production may be a rare exception.
A master of agribusiness thesis by Joel Karlin of Kansas State University demonstrated that in California, dairies’ profit maximization not only achieved higher returns than using a least-cost model but also had the highest production, allowing milk output to be maximized.
I have the privilege and joy to work with our sales and agronomy local teams in the western U.S. to provide forage, agronomy and nutritional support.
One of the key issues and challenges our teams often encounter when working with livestock production enterprises is the daunting task of managing and controlling feed inventories and costs.
Many of these livestock operations have farming enterprises that supply a portion or all of the grain and forages utilized by the livestock enterprise. Many of the farming enterprises may also operate as a profit center separate from the livestock operation that it supplies.
This is a relationship that may complicate decisions and lead to additional least-cost diet formulation issues.
To help you apply this model to your operation, the following are some practical key points for livestock enterprise ration formulation to help maximize profits.
• Seek least-cost production, not least-cost diets. There are many feeding decisions that may appear to cut feed costs on the surface but cost more in the long run.
• Some ingredients provide additional benefits that breakeven-price software programs do not consider.
• Corn is king for energy yield per acre. Focus on getting and keeping more from corn plants (silage, earlage, high-moisture corn).
• Frequently re-appraise value versus cost of additives and management practices. Many feed additives are “slam dunk” recommendations. Ask for and demand economic research that includes a return on investment analysis.
• Focus on reducing feed storage shrink loss. With today’s high feed prices, shrink can be a significant contributor to higher costs. Managing and monitoring weighbacks can increase profitability. One guideline is to target 1 to 2 percent weighback per cow per day. Bunk management may allow feeding to an empty bunk.
• Are you delivering the TMR that was formulated? Monitor and measure weighing and loading errors to improve feeding management.
If you aren’t checking dry matter regularly, this would be a great time to invest in a microwave oven or Koster tester and a scale. Ensuring cows are getting the ration formulated on paper will help avoid overfeeding of purchased feeds. PD
Bill Ramsey
Western Livestock Information Manager
DuPont Pioneer
