Although faced with daunting feed costs challenges, dairy producers need to be careful when responding. Some decisions, seemingly made for the best economic reasons, can turn out to be wrong, For instance, decisions that appear on the surface to make sense may make things worse. These include removing feed additives because they add to feed costs; dropping expensive fuzzy cottonseed; adding five pounds of straw to the ration to reduce forage levels; dropping hay from the ration; or simply assuming that the answer to high feed costs is to lower them.

Because of current milk prices and milk component values, it is a mistake to sacrifice milk production. By reducing feed intake by one pound of dry matter, for instance, you may save 10 cents but lose 36 to 40 cents a day in milk income. A similar situation can apply to yeast/yeast culture additives. Research indicates that yeast/yeast culture products have a benefit to cost return of 5:1. If the yeast product costs six cents, it can result in 30 cents return due to higher feed intake during the transition period, higher milk yield, improved rumen environment, and/or less metabolic problems.

While fuzzy cottonseed emerges as too expensive when put through breakeven prices software programs, it does provide other important factors that can't be measured by computers. These include functional fiber, slower release of unsaturated oil, and complementing high corn-silage based rations.

If too much straw is added to reduce forage levels, it will reduce total dry matter intake, reducing nutrient levels and milk yield. Before adding straw, evaluate the current ration levels and what the straw will add. Generally, add one-half pound of straw to the ration and monitor cow response--milk yield, milk components, and manure score--for one to two weeks. If the response is favorable, consider adding another half-pound of straw. But adding over two pounds of straw may be too high. Even though high hay prices are a tempting factor to trigger cutting its use, hay also can improve rumen digestion and microbial growth. Adding five pounds of high-quality hay could increase milk yield by three to five pounds. If milk is worth 18 cents a pound, each pound of hay is worth 11 to 18 cents a pound or $220 to $360 a ton.

Be sure to monitor milk price and feed cost changes as these two factors continue to shift due to spring planting intentions and consumer dairy product demand.

The year 2007 has been a roller coaster for dairy industry.

For dairy producers, the price of milk has increased from $12 per cwt ($1.14 per gallon) in January to over $22 per cwt ($1.80 per gallon) in July. While this has been critical to return and profit margin, other factors have also occurred:

• Price of hay and forage has jumped from $90 a ton to$160 a ton due to the Easter freeze (loss of first crop and winter wheat as a forage source).
• Corn prices have remained high with corn prices reaching $4.20 a bushel in January.
• Fuzzy cottonseed has increased from $135 to $265 a ton as acreage was shifted to corn production for ethanol.
• Fuel and fertilizer prices have increased.

The bottom line is the break even price for IL milk producers has increased from $13 to $16 per cwt reducing profits and margins.

For consumers, the price of milk has increased 60 cents to over one dollar a gallon. Part of this cost increase is due to higher farm gate milk prices which represents about 60 cents a gallon. Consumers may be experiencing a new base milk price of $3.50 per gallon or higher compared to $2.80 a gallon. In Tennessee, a gallon of milk was $5.60 a gallon. 

Looking ahead to 2008, several factors could impact the price of milk for both producers and consumers.

• Restricted use of rBST will reduce milk yield 2 to 4% leading to higher milk prices for both producers and consumers. However, farmers using rBST will experience significant losses of over $1 per cow per day.
• The number of milk cows in the U.S. is up 2 to 4 percent which could reduce milk prices.
• World milk prices will depend on the value of the U.S. dollar and  increased milk quotes on Canada and European Union. Continued increases in demand in China and Pacific Rim countries will be a factor.
• Price of ethanol as it impacts corn demand and use.
• Weather conditions during the growing season.

Both producers and consumers have an interest in the U.S. dairy industry.

As the fall weather returns, dairy managers in Illinois face three different situations and alternatives with their corn crop.

Situation 1—Northern Illinois:   An excellent corn crop was developing when areas received 4 to 15 inches of rain resulting in corn submerged in 5 feet of “dirty water” as creeks and river bottom went under water, corn is standing in water for several days, and corn in the upright position trapped water in the husk.  The end results include delayed harvest, mold and mycotoxin formation in the grain, rotting of the corn plant, risk of lodging, dirt contamination on and in the corn plant, and the germination of corn on the cob.  The strategies include harvest when possible at the optimal dry matter content for silage or grain, monitor formation of mycotoxins, and store silage that is convenient to discard if the resulting forage is not wholesome.

Situation 2—Southern Illinois:  Rains stopped in June with some areas not receiving significant moisture in July and August.  The corn crop is burn up and dead ranging from three feet in height, no corn due to pollination and heat stress, and variable grain fill in pollinated cobs (size of the kernel and number of kernels).  Dairy manager alternatives include corn silage chopped in early August and purchase stress corn as a forage extender.  Drought-stressed corn silage can be a good economic decision as hay prices exceed $150 a ton.   Double crop soybeans can be another economic forage source if this crop has not setting pods under heat and moisture stress.

Situation 3—Central Illinois:   Conditions are right for a huge crop with yields over 200 bushels per acre and 25 plus tons of corn silage per acre possible.  Starch content in corn silage could exceed 30 percent of the dry matter.   Forage quality and quantity are excellent.

• 38% of dairy producers are using ethanol co-products while 40% indicate they are not considering it.
• Of those dairy managers using co-products, 45% used distillers dried grain, 22% corn gluten feed, 10% brewers grain, 6% wet distillers grain, and 3% corn distillers solubles.
• The reported price for distillers dried grain was $130 a ton (breakeven price is over $200 a ton) while corn gluten was listed at $104 a ton (breakeven is over $130 a ton).  Breakeven prices reflect the value of the nutrients in the by-product feed (a price below breakeven reflects a “good buy” for dairy managers).
• 63% did not prefer indicate a choice for  light colored ethanol by-product (dark color may reflect heat damage or lower quality).
• Dairy managers rated price and quality of product as key characteristics when buying a by-product feed.
• 26% of dairy managers reported the primary reason not to use by-product feeds was availability with handling as the second reason.