Think different: farm profit is in input cost control not price

Beyond control: global commodity costs

Feed represents a significant portion of production costs in livestock farming. In dairying, share of feed costs in total costs can range anywhere between ~30% and ~90%, depending on farm type and location in the world. In beef feedlot production, feed costs account for ~60-70% in Brazil, ~70-80% in US, and ~65-75% in China.

Feed cost is driven by both global commodity markets, regional factors such as land availability and energy prices, as well as local market dynamics.

In regions of the world where the cost of land, wages, and energy is significantly higher than in others, margins are tighter, and feed efficiency becomes an even more essential focus for farmers who want to stay competitive. For example in Europe, machinery, equipment, fuel, labor and capital costs are high. In the USA and Latin America, the biggest portion of production costs are on the feed purchased as concentrate feed and forage. This serves as an important reminder to consider local production costs and not just milk or beef price.

A key driver of feed costs is the price of core ingredients like corn and soybeans. Corn, a primary source of energy and starch for livestock, is a prime example of a globally traded commodity whose price is largely out of farmers' hands. With global corn production slightly contracting this year, prices are expected to increase. Soybean production is set to increase by about 6% in 2024/5, which may lead to slightly lower prices in the medium term. Production of these key crops is variable annually, influenced by weather, pest pressure and prices.

Farmers and feed manufacturers must be prepared for volatility in feed prices and adjust their strategies accordingly.

Feed efficiency: only as good as your farm manager

As feed manufacturers and farmers, the reality is that farmers often have no choice but to accept the price situation, with not much less else to do. So how do we manage this "out of our hands" problem?

The solution lies in optimizing cost of production. As the largest chunk of that cost is feed, a key focus for farm managers is to make sure every kilogram of feed is converted into productive output as efficiently as possible.

Farm consolidation is a growing trend, resulting in fewer, bigger farms, but with roughly the same national head of animals. Crucially, these farms are producing more than ever before. The shift towards larger, more efficient farms is being driven by farmers’ increasing focus on performance and feed efficiency. Without this, farms are simply not profitable or viable businesses.

However, feed efficiency is not a plug-and-play. The best, profitable, farms have skilful farm managers whose strategy that recognizes the positive correlation between cow health and welfare and high output. Combined with managing production costs and taking optimal sale prices. Recording and using data is key to this success, allowing farmers to fine-tune their operations based on real-world results rather than assumptions.

It’s not about asking for higher prices for milk or beef, but instead managing the cost of production to remain profitable despite fluctuating ingredient costs. A well-managed farm in a high-cost region can outperform a poorly managed farm in a low-cost region simply by managing feed and stock better.

Cost of production vs. sale price: which matters more?

One of the most critical questions farmers should ask themselves is whether they focus on the price they receive for their products (milk, beef, etc.) or the cost of producing that product.

When talking to a dairy farmer, and asking what would help them the most to improve their profitability, logically most of them will reply "we need a better milk price". However, milk price does not have such a high correlation with profitability as much as the effective operating costs per kg of milk.

Milk price only sets the margin 4% of the time, whereas production costs drive the margin 67% of the time.

Global price pressures on raw materials like corn and soybeans, and even the inputs needed for those growing feed on-farm, controlling production costs is far more important than focusing solely on sale prices.

This is why the best farm managers find the right balance between maximizing output and minimizing costs. More milk doesn’t always mean more money if the cost of production outweighs the returns. By focusing on efficiency, farms can achieve a sustainable business model, tailored to their business and unique set of challenges, even in the face of fluctuating global commodity prices.

How do we address feed efficiency at dsm-firmenich?

Testing silage for mycotoxins, and selecting optimal TMR for your herd can be supported by experts at dsm-firmenich.

Additionally, products such as Crina® can improve protein utilisation by creating more microbial protein for your animals.

What’s next?

In today’s complex agricultural environment, one size doesn’t fit all. Farmers need to rely on data-driven insights to make smart decisions about feed efficiency, animal health, and production strategies. The right solution for one farm may not be the best for another, and the key to long-term success is finding the right balance between performance and cost management.

By focusing on cost of production, optimizing feed efficiency, and using innovative feed solutions such as Crina®, tailored to specific farm conditions, farmers can navigate the challenges of rising feed costs and maintain profitability in a highly competitive global market.