Copyright 2011, N. St-Pierre, The Ohio State University

Handling High Commodity Prices

Normand St-Pierre, Ph.D., P.A.S.

The Ohio State University

Copyright 2011, N. St-Pierre, The Ohio State University

Realities

High(er) commodity prices are likely with us for the long-run…

Dairy producers are NOT defenseless Change in thinking and attitude Sharper pencil

Copyright 2011, N. St-Pierre, The Ohio State University

A Few Questions

• Is corn expensive?

Copyright 2011, N. St-Pierre, The Ohio State University

Corn, U.S. No 2 YellowFOB Gulf of Mexico, US dollars per metric ton

July 1991 – July 2011

Source: International Monetary Fund

Copyright 2011, N. St-Pierre, The Ohio State University

A Few Questions

• Is corn expensive?• From a HISTORICAL perspective, YES.

Dah!

Copyright 2011, N. St-Pierre, The Ohio State University

What Can Be Done?

Shop better!

Copyright 2011, N. St-Pierre, The Ohio State University

What Can Be Done?

Shop better! Finding the same feed, but cheaper somewhere else.

Make sure that you are comparing apples to apples. Commodities can have the same name but different specifications.

Feeds are often bought with services bundled in. Forage analyses, ration balancing These services have a value, but make sure that:

1. You require these services 2. They are delivered at a competitive price

Copyright 2011, N. St-Pierre, The Ohio State University

What Can Be Done?

Shop better! Finding the same feed, but cheaper somewhere else. Make use of cash discounts

Manage your cash-flow 1% discount for paying 15 days early is equal to an APR greater

than 25%.

Copyright 2011, N. St-Pierre, The Ohio State University

What Can Be Done?

Shop better! Finding the same feed, but cheaper somewhere else. Make use of cash discounts Avoid credit card balances

Copyright 2011, N. St-Pierre, The Ohio State University

What Can Be Done?

Shop better! Finding the same feed, but cheaper somewhere else. Make use of cash discounts Avoid credit card balances Make sure that you are getting what you paid for…

(and that you know what you are paying for…)

Copyright 2011, N. St-Pierre, The Ohio State University

What Can Be Done?

Shop better! Shop wiser!

Copyright 2011, N. St-Pierre, The Ohio State University

What Can Be Done?

Shop wiser! Finding underpriced feeds

Not the same as “cheap feeds” Avoiding overpriced feeds

Not the same as “expensive feeds” Comparing feed ingredients with different

nutritional composition

Copyright 2011, N. St-Pierre, The Ohio State University

It’s like buying a house!

What is this house worth?

Copyright 2011, N. St-Pierre, The Ohio State University

It’s like buying a house!

Or this one?

Copyright 2011, N. St-Pierre, The Ohio State University

It’s like buying a house!

Or these houses?

Copyright 2011, N. St-Pierre, The Ohio State University

House Value

Different houses have different attributes. We can price the house attributes (square feet,

number of bedrooms, number of bathrooms, square yards of backyard, high school average scores on SAT/ACT, etc…) if we have many houses that sold and their attributes.

Copyright 2011, N. St-Pierre, The Ohio State University

The Need

To compare feedstuffs of different composition on an economic basis.

To determine the cost of nutrients.

Copyright 2011, N. St-Pierre, The Ohio State University

Assumptions

Feedstuffs are worth their content of nutrients Buyers and sellers of feedstuffs are coherent and

rational Markets are competitive but need time (lag) to adjust.

Copyright 2011, N. St-Pierre, The Ohio State University

The Peterson MethodApplied to Energy and Crude Protein

Price DM % CP (%) NEl (Mcal/lb)

Corn $ 150 88 10.0 0.89

Soybean Meal $ 300 90 55.1 0.91

Copyright 2011, N. St-Pierre, The Ohio State University

The Peterson Method:Using Corn and Soybean Meal

Corn: 150 = 176 $CP + 1566 $NE

Soybean: 300 = 992 $CP + 1638 $NE

Copyright 2011, N. St-Pierre, The Ohio State University

The Peterson Method:Using Corn and Soybean Meal

Corn: 150 = 176 $CP + 1566 $NE

Soybean: 300 = 992 $CP + 1638 $NE

Value of Crude Protein

In one Ton of Corn

Copyright 2011, N. St-Pierre, The Ohio State University

The Peterson Method:Using Corn and Soybean Meal

Corn: 150 = 176 $CP + 1566 $NE

Soybean: 300 = 992 $CP + 1638 $NE

Value of Crude Protein

In one Ton of Corn

Value of Energy

In one Ton of Corn

Copyright 2011, N. St-Pierre, The Ohio State University

The Peterson Method:Using Corn and Soybean Meal

Corn: 150 = 176 $CP + 1566 $NE

Soybean: 300 = 992 $CP + 1638 $NE

Two equations with two unknowns...

Copyright 2011, N. St-Pierre, The Ohio State University

The Peterson Method:Using Corn and Soybean Meal

Corn: 150 = 176 $CP + 1566 $NE

Soybean: 300 = 992 $CP + 1638 $NE

$CP = $0.177/lb

$NE = $0.076/Mcal

Copyright 2011, N. St-Pierre, The Ohio State University

Problems with the Peterson Method:Using Corn and Soybean Meal

• Assumes that corn and soybean meal (barometer feeds) are always perfectly priced• Both are never over- or under-priced

• Values only energy and crude protein• Method implies irrational buyers and sellers

• Buyers would keep buying “overpriced” commodities• Sellers would keep selling “underpriced” commodities

Copyright 2011, N. St-Pierre, The Ohio State University

Overcoming the Problems

Sesame uses prices and composition of all feeds traded in a given market to calculate the cost of the nutrients.

Sesame uses the economically important nutrients to assess the economic value of a feed.

Copyright 2011, N. St-Pierre, The Ohio State University

Reminders There are no “requirements” in Sesame

Market information back captures the implicit state of supply and demand

Sesame does not look whether a feed “fits” Fitting is tactical; Sesame is strategic

Selection of different nutrients yields different economic values Economic value is not the same for a hog and a cow Economic value is not the same for elite producers

vs. average producer

Copyright 2011, N. St-Pierre, The Ohio State University

PA – 8/29/2011

Copyright 2011, N. St-Pierre, The Ohio State University

PA – 8/29/2011

Copyright 2011, N. St-Pierre, The Ohio State University

PA – 8/29/2011

Copyright 2011, N. St-Pierre, The Ohio State University

PA – 8/29/2011

Copyright 2011, N. St-Pierre, The Ohio State University

Soybean Meal – 48%

Copyright 2011, N. St-Pierre, The Ohio State University

False Savings?

• “I grew it, so it is not as expensive to feed my cows!”

Copyright 2011, N. St-Pierre, The Ohio State University

False Savings?

• “I grew it, so it is not as expensive to feed my cows!”• So, the person selling your

corn is either an incompetent or an imbecile!

Copyright 2011, N. St-Pierre, The Ohio State University

What is the new nutritional economics era?

• Dietary energy (NEL) costs well above historical average (casualty of grain ethanol ???)

• Discounted RDP prices (dependent on amount of grain processing)

• Variable d-RUP prices (should follow the “protein” market but with greater fluctuation amplitudes)

• Discounted ne-NDF prices (depends on supply/demand for “processed” dietary fiber)

• Expensive e-NDF (casualty of grain ethanol ???)

Copyright 2011, N. St-Pierre, The Ohio State University

2004 2008 ---- lbs as fed per day ---- Legume hay 4.2 4.2 Legume silage 19.5 19.5 Corn silage 37.0 37.0 Brewers grains, wet 13.8 - Whole cottonseed 5.0 2.75 Corn, ground 15.0 11.25 Soymeal 44% 2.25 - Soymeal, expeller 2.25 2.75 DDGS - 3.33 Hominy - 2.25 Gluten feed - 2.75 Wheat middlings - 2.75 Tallow 0.5 - Minerals and Vits 1.5 1.5

Copyright 2011, N. St-Pierre, The Ohio State University

2004 2008 ---- lbs as fed per day ---- Legume hay 4.2 4.2 Legume silage 19.5 19.5 Corn silage 37.0 37.0 Brewers grains, wet 13.8 - Whole cottonseed 5.0 2.75 Corn, ground 15.0 11.25 Soymeal 44% 2.25 - Soymeal, expeller 2.25 2.75 DDGS - 3.33 Hominy - 2.25 Gluten feed - 2.75 Wheat middlings - 2.75 Tallow 0.5 - Minerals and Vits 1.5 1.5

Same amounts of forage fed

Copyright 2011, N. St-Pierre, The Ohio State University

2004 2008 ---- lbs as fed per day ---- Legume hay 4.2 4.2 Legume silage 19.5 19.5 Corn silage 37.0 37.0 Brewers grains, wet 13.8 - Whole cottonseed 5.0 2.75 Corn, ground 15.0 11.25 Soymeal 44% 2.25 - Soymeal, expeller 2.25 2.75 DDGS - 3.33 Hominy - 2.25 Gluten feed - 2.75 Wheat middlings - 2.75 Tallow 0.5 - Minerals and Vits 1.5 1.5

Eliminate Wet brewers grains

Copyright 2011, N. St-Pierre, The Ohio State University

2004 2008 ---- lbs as fed per day ---- Legume hay 4.2 4.2 Legume silage 19.5 19.5 Corn silage 37.0 37.0 Brewers grains, wet 13.8 - Whole cottonseed 5.0 2.75 Corn, ground 15.0 11.25 Soymeal 44% 2.25 - Soymeal, expeller 2.25 2.75 DDGS - 3.33 Hominy - 2.25 Gluten feed - 2.75 Wheat middlings - 2.75 Tallow 0.5 - Minerals and Vits 1.5 1.5

Cut whole cottonseed by nearly half

Copyright 2011, N. St-Pierre, The Ohio State University

2004 2008 ---- lbs as fed per day ---- Legume hay 4.2 4.2 Legume silage 19.5 19.5 Corn silage 37.0 37.0 Brewers grains, wet 13.8 - Whole cottonseed 5.0 2.75 Corn, ground 15.0 11.25 Soymeal 44% 2.25 - Soymeal, expeller 2.25 2.75 DDGS - 3.33 Hominy - 2.25 Gluten feed - 2.75 Wheat middlings - 2.75 Tallow 0.5 - Minerals and Vits 1.5 1.5

Reduce ground corn by 25%

Copyright 2011, N. St-Pierre, The Ohio State University

2004 2008 ---- lbs as fed per day ---- Legume hay 4.2 4.2 Legume silage 19.5 19.5 Corn silage 37.0 37.0 Brewers grains, wet 13.8 - Whole cottonseed 5.0 2.75 Corn, ground 15.0 11.25 Soymeal 44% 2.25 - Soymeal, expeller 2.25 2.75 DDGS - 3.33 Hominy - 2.25 Gluten feed - 2.75 Wheat middlings - 2.75 Tallow 0.5 - Minerals and Vits 1.5 1.5

Eliminate conventional soybean meal

Copyright 2011, N. St-Pierre, The Ohio State University

2004 2008 ---- lbs as fed per day ---- Legume hay 4.2 4.2 Legume silage 19.5 19.5 Corn silage 37.0 37.0 Brewers grains, wet 13.8 - Whole cottonseed 5.0 2.75 Corn, ground 15.0 11.25 Soymeal 44% 2.25 - Soymeal, expeller 2.25 2.75 DDGS - 3.33 Hominy - 2.25 Gluten feed - 2.75 Wheat middlings - 2.75 Tallow 0.5 - Minerals and Vits 1.5 1.5

Slight increase in expeller soymeal

Copyright 2011, N. St-Pierre, The Ohio State University

2004 2008 ---- lbs as fed per day ---- Legume hay 4.2 4.2 Legume silage 19.5 19.5 Corn silage 37.0 37.0 Brewers grains, wet 13.8 - Whole cottonseed 5.0 2.75 Corn, ground 15.0 11.25 Soymeal 44% 2.25 - Soymeal, expeller 2.25 2.75 DDGS - 3.33 Hominy - 2.25 Gluten feed - 2.75 Wheat middlings - 2.75 Tallow 0.5 - Minerals and Vits 1.5 1.5

Heavy use of by-products

- Multiple sources reduces total diet variation

Copyright 2011, N. St-Pierre, The Ohio State University

2004 2008 ---- lbs as fed per day ---- Legume hay 4.2 4.2 Legume silage 19.5 19.5 Corn silage 37.0 37.0 Brewers grains, wet 13.8 - Whole cottonseed 5.0 2.75 Corn, ground 15.0 11.25 Soymeal 44% 2.25 - Soymeal, expeller 2.25 2.75 DDGS - 3.33 Hominy - 2.25 Gluten feed - 2.75 Wheat middlings - 2.75 Tallow 0.5 - Minerals and Vits 1.5 1.5

Eliminate tallow

Copyright 2011, N. St-Pierre, The Ohio State University

2004 2008 Dry matter (lbs/day) 51.3 51.3 NEL (Mcal/lb) 0.735 0.734 ---- % of DM ---- CP 17.0 16.7 RDP 11.3 10.8 RUP 5.6 5.8 MP 10.6 10.6 NDF 32.2 33.3 NFC 42.5 42.8 Ether extracts 5.7 4.6

Copyright 2011, N. St-Pierre, The Ohio State University

2004 2008 Dry matter (lbs/day) 51.3 51.3 NEL (Mcal/lb) 0.74 0.73 ---- % of DM ---- CP 17.0 16.7 RDP 11.3 10.8 RUP 5.6 5.8 MP 10.6 10.6 NDF 32.2 33.3 NFC 42.5 42.8 Ether extracts 5.7 4.6 Cost ($/cow per day) (using 2008 prices)

6.10 5.52

Difference of $0.58/cow/day

Copyright 2011, N. St-Pierre, The Ohio State University

What Can Be Done?

Shop better! Shop wiser! Avoid the black holes!

Copyright 2011, N. St-Pierre, The Ohio State University

What Can Be Done?

Avoid the black holes! Shrinkage of commodities

Often exceeds 5% DM shrinkage of silages

Copyright 2011, N. St-Pierre, The Ohio State University

Pricing home-grown corn silage

Copyright 2011, N. St-Pierre, The Ohio State University

Pricing home-grown corn silage

10% $6.10

$67.10

Copyright 2011, N. St-Pierre, The Ohio State University

What Can Be Done?

Shop better! Shop wiser! Avoid the black holes! Don’t cut the corners!

Copyright 2011, N. St-Pierre, The Ohio State University

What Can Be Done?

Don’t cut the corners! Value of multiple rations

Copyright 2011, N. St-Pierre, The Ohio State University

Nutritional Grouping: Benefits More “precise” nutrition

Diets are closer to the nutritional requirements of all animals in the group

Reduced feed costs Lower lead factors (safety margins) Better targeting of feed additives and value-added

feeds Improved production Better control of body condition Reduced nutrient excretion

Copyright 2011, N. St-Pierre, The Ohio State University

Nutritional Grouping: Disadvantages A pain in the b… Transient reduction in production Labor and management demand

More complicated to feed, etc. A pain in the b… worth ~ $0.25/cow/day!

Copyright 2011, N. St-Pierre, The Ohio State University

What Can Be Done?

Don’t cut the corners! Value of multiple rations

Avoid steep changes in diet composition Move large number of animals at once Reduced effects in large pens

Group for other things than breeding status

Copyright 2011, N. St-Pierre, The Ohio State University

Number of Lactation Diets Practical recommendations:

<100 cows: 1 group 100-300: 2 groups >300: 3 groups

Copyright 2011, N. St-Pierre, The Ohio State University

What Can Be Done?

Shop better! Shop wiser! Avoid the black holes! Don’t cut the corners! Using feed additives to hide management

flaws!

Copyright 2011, N. St-Pierre, The Ohio State University

What Can Be Done?

Shop better! Shop wiser! Avoid the black holes! Don’t cut the corners! Using feed additives to hide management

flaws! Reduce the welfare checks!

Copyright 2011, N. St-Pierre, The Ohio State University

The Welfare Checks

Reduce the welfare checks! Dry cows and replacement heifers are welfare

recipients. Their welfare checks are written by the lactating

cows.

Copyright 2011, N. St-Pierre, The Ohio State University

The Welfare Checks

Copyright 2011, N. St-Pierre, The Ohio State University

The Welfare Checks

Copyright 2011, N. St-Pierre, The Ohio State University

The Welfare Checks

Copyright 2011, N. St-Pierre, The Ohio State University

The Welfare Checks

A 30% reduction in net income…

Copyright 2011, N. St-Pierre, The Ohio State University

Handling high commodity prices

What do you think?

Thank You