You can feed; custom feed; cull and buy replacements; or cull and use homegrown replacements
What is your best option if you’re short on feed?
“Each farm is different and therefore doing your numbers as they pertain to your situation is paramount,” said provincial economics extension specialist Herman Simons. “In addition, each option has different pros and cons, which should be listed and taken into account when determining the best suitable option for your own operation.”
Simons uses Net Present Value (NPV) to determine the economic cost and benefit over time for four options. (NPV translates the value of a sum of money in the future in today’s dollars applying a discount rate of five per cent.)
The goal in the analysis is to get a herd of 100 cows back to its original size as quickly as possible.
The four scenarios start with these assumptions:
- The 100 cows average 1,400 pounds and cull cows sell for $85 cwt.
- The herd’s four bulls average 2,200 pounds and cull bulls sell for $110 cwt.
- There are 15 yearling heifers, averaging 800 pounds, and the heifer price (eight weights) are $170 per cwt.
- The dry matter (DM) intake requirement is 2.5 per cent and there is a 242-day feeding period (Oct. 18 to May 31).
- Replacement bred heifers cost $2,500 per head and replacement bulls $5,000 per head.
- The current hay price is 12 cents per pound, the future hay price is six cents per pound, and the custom feeding rate is $3.75 per head per day.
- Transportation costs for hay are $1,500 per load (for six loads) and for livestock are $6.50 per loaded mile (at 400 miles).
- There is a feed shortage of 25 per cent and the evaluation on impact is done over five years
Option 1: Purchase feed
The first option is to purchase the additional 25 per cent of feed needed to feed the full herd of 100 cows.
“There is no reduction in size of herd, so all income and expenses stay the same,” said Simons. “In this case, the cost in year one for getting the feed needed would be about $43,000 delivered to the farm. These funds have to be borrowed or cash flowed from available funds. Either way, associated interest costs are spread over five years. The NPV of this option is estimated at negative $46,000.”
Option 2: Move 25 per cent of herd to custom feeding
“Rather than hauling feed, this option is about hauling animals,” said Simons. “Take the percentage of cows that is equal to the percentage of your feed shortage — in this case, 25 per cent. Have another producer tend to them at a cost of $3.75 per head per day. Take into account hauling 400 miles, twice. The cash cost in year one is estimated around $32,500, and we will use the same timeline for interest costs. The NPV of this option is estimated at negative $34,500.”
Option 3: Sell cows and buy back heifers
“To maintain full production, this option is to sell off 25 per cent of the herd — cows, bulls, and heifers — then replace them with pregnant heifers early into the next season. This replacement will ensure selling the same number of calves by the end of the next production year.
“The net cash cost in year one of this option is about $20,000. It is the net difference between the purchase price of replacement stock, reduced by the revenue of the sold animals. The NPV is estimated at negative $21,100.”
Option 4: Sell cows and replace with internal replacement only
“With this last option, sell the cows as in Option 3, and use only homegrown heifers at a normal replacement rate until the herd is back to its original size,” said Simons. “In this case, a quarter of the herd has been sold. So 11 heifers remain to be added to the herd in year two, and a sufficient supply of heifers in following years brings the herd back to its original size by year three.”
This option would see a new bull purchased for $5,000 in year two.
“Up to this point, a loss of revenue needs to be considered. This loss is offset by excess feed that would have been used to feed the original herd but is now available for inventory or sale. All other expenses stay the same. Rather than a cash cost, we estimate a positive cash position of almost $30,600 for the first year and a cost of $10,400 for the second year. By year three, all is back to normal.
“The NPV of this option is estimated to be positive $19,700.”
What to consider
These four options depend on a particular set of assumptions — and those will vary for every operation.
“Many variables make each situation different, so it is important to do your own analysis,” said Simons.
Moreover, some options might not be financially possible for some farms.
“Each option has different cash flow implications,” he said. “The financial situation of the farm can make different options not viable.”
But the four scenarios highlight some key factors to consider, he added.
“While buying feed to replace the shortage gives the most control, it also seems to be the most expensive option in this example. I have used hay as the primary feed, but look at the opportunities in your area for alternative feed sources such as straw, pea straw, or greenfeed from hail-damaged crops.”
For custom feeding, it’s important to have “well-written agreements that lay out the commitments for both parties.”
In Option 3, “market price uncertainty is the key variable,” he said.
And Option 4 also has other factors that must be considered.
“Downsizing and grow back using own raised heifers seems to be the most financial positive option, but consider the additional implications of this option,” said Simons. “For example, if you are not selling the hay do you have sufficient income for living expenses? What are the tax implications of reducing your herd size?”