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Managing Your Margins through Reduced Feed Costs and Increased Milk Prices

October 7, 2011
By: Catherine Merlo, Dairy Today Western and Online Editor google + 
 
 

Ohio professor offers practical ways to boost net margins.

The increase in feed prices is permanent, but dairy producers are not defenseless, Normand St-Pierre of The Ohio State University said Friday at World Dairy Expo.

 

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“Increasing milk component yields  is one of the most effective ways that producers can affect their net margins,” Norman St-Pierre said Friday during a World Dairy Expo educational seminar.
Speaking at an education seminar, “Managing Your Margins: Practical Ways to Reduce Feed Costs and Increase Milk Prices,” St-Pierre described what dairy producers can do to improve net margins.

 

What’s happened in the corn market has created a new reality for dairies, St-Pierre said. In the 192 months between July 1991 and August 2006, U.S. corn traded under $3 per bu. in 171 of those months, peaking for only a short time at over $5 per bu. in May 1996. Since September 2006, U.S. corn has not traded under $3 per bu. ever again.

 

“Chances are good we will never see corn under $3 per bu. again,” St-Pierre said. “Meanwhile, milk prices have played yo-yo like never before.”

 

Because a net margin from milk production now depends on the difference between milk sales and feed costs, a focus on milk and feed prices serves as a good proxy to net margins.

 

St-Pierre offered this advice for producers to manage feed costs:

 

1. Shop better.

 

• Find the same feed but cheaper somewhere else. “Make sure, however, that you’re comparing apples with apples,” he said. “Commodities can have the same name but different specifications.”

 

• Make use of cash discounts. Make sure you have sufficient cash flows, but some suppliers are offering very attractive cash discounts.

 

• Don’t carry a balance on your credit cards. “Even your obnoxious brother-in-law can lend you money at a lower rate than most credit cards,” St-Pierre said.

 

• Make sure you get what you pay for. Hidden fees are sometimes added to feed prices. Ask what the ‘super-duper premix’ is supposed to contain.

 

2. Shop wiser. The idea is to find underpriced feeds and to avoid overprices ones. “This is very different than finding cheap feed and avoiding expensive ones,” St-Pierre said. The software Sesame can help, he said.

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RELATED TOPICS: Hay/Forage, Dairy, World Dairy Expo

 
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