Because feed accounts for half of all costs on a dairy farm, many dairy producers are tempted to focus on lowering feed costs, especially when feed prices are high. In many cases, such "cost savings" are made knowing that production may suffer. This management strategy is sometimes justified by the fact that the level of milk production per cow on different dairy farms is poorly related to the profitability per cow on those farms.¹ The objective of this article is to illustrate that higher milk production per cow usually enhances profits more than will decreasing feed costs on most dairy operations.

Higher Production Yields Greater Profits
One reason higher production yields greater profits is that cows convert feed to milk more efficiently as they produce more milk and eat more. A typical Holstein cow requires 10 Mega-calories (Mcal) of Net Energy of Lactation (NE_L) per day just to maintain normal body functions. If her diet contains 0.67 Mcal/lb of NE_L, she must eat 15 lb/day of feed dry matter (DM) to meet maintenance requirements. If a cow produces 32 lb/day of milk, she needs an additional 10 Mcal of NE_L and must consume twice as much feed--or eat at "2X maintenance," with 50% of her diet used for maintenance. If she produces 63 lb/day of milk, she needs a total of 30 Mcal/day of NE_L or "3X maintenance." As the cow produces more milk, the amount of feed needed for maintenance does not change; however, the percentage of feed used for maintenance decreases. At 5X intake (120 lb of milk), only 20% of feed NE_L goes toward maintenance and 80% flows to the milk tank. Thus, feed efficiency increases as a cow produces more milk. However, at higher levels of intake, some feeds are not digested as efficiently. Feed efficiency likely is maximized when a cow produces about 100-150 lb of milk daily.²

Feed Costs
Profitability, however, is not directly related to feed efficiency. As cows produce more milk, their diets typically contain more expensive ingredients. Per Mcal of NE_L, feeds rank in cost as follows; least costly ingredients are listed first.

1. Pasture–2 to 3¢ /Mcal.
2. Corn silage–4 to 5¢/Mcal.
3. Corn grain and byproduct feeds–5 to 8¢/Mcal.
4. Alfalfa–7 to 10¢/Mcal.
5. Oilseeds and animal fat–8 to 12¢/Mcal.
6. Protected fats and protein supplements–12 to 40¢/Mcal.
7. Minerals, vitamins, and buffers–very expensive per Mcal because they do not
    contain energy

Feed costs per 100 lb of milk is a common marker of economic efficiency and decreases considerably as production increases from 25 to 50 lb of milk/cow/day. To minimize feed costs per 100 lb of milk, the average cow should produce about 60 lb/day.² Feed costs per 100 lb of milk would further decrease above 60 lb of production provided the diet did not become more expensive per Mcal of NE_L (compare rows 1, 5, and 9 in Table 2). Even in grazing systems, which have low feed costs, feed costs per 100 lb of milk will be minimized when most cows produce above 50 lb/day because of dramatic improve-ments in feed efficiency as production increases from 25 to 50 lb/day.
   If the diet increases in cost from 8 to 9¢/Mcal while yield increases from 60 to 70 lb/day (compare rows 1 and 4 in Table 2), no benefit is seen when feed costs per 100 lb of milk is used as the financial indicator. However, the extra milk income in this scenario is greater than the extra feed cost, which translates to an increase in income over feed costs by more than 50¢/cow/day. In fact, income over feed costs generally increases as milk production increases, even when feed becomes more expensive per Mcal of NE_L. Income over feed costs is not related to feed costs per 100 lb of milk, which demonstrates that feed costs per 100 lb of milk is not a very useful financial monitor in many situations.

   In most situations, as income over feed costs increases, profitability increases too. However, this would not be the case if the extra milk is obtained at the expense of long-term cow health, such as when cows are fed too much grain. To fully examine effects of changes in milk production on profitability, one must consider possible changes in non-feed costs. In the long term, cows producing more milk generally will require better care and management, and hence, require greater non-feed costs. Non-feed costs on a typical mid western dairy farm producing 20,000 lb of milk/cow/year and assumptions for the response of these costs to changes in milk production are shown in Table 1.

Profitability
In Table 2, the relationship between level of production, feed costs, and profitability is shown for the typical mid western dairy operation. The "best case" scenario for profitability assumes that feed for lactating and dry cows is the only variable cost associated with changes in milk yield; this would usually be true for changes in the short term. The "expected" scenario assumes that over time, changes in milk yield will also be associated with changes in costs other than feed as shown in Table 1. In either case, note that as milk production increases, profits per cow are increased even when ration costs per Mcal of NE_L increase slightly. And, especially in the best case scenario, note that milk yield is a much more important determinant of profitability than is feed cost. The current example assumes a milk price of $12/100 lb of milk and, of course, milk price is a major determinant of profitability. However, level of production is more important for profitability than feed costs in most situations regardless of milk price.

   Profitability also would increase if feed costs decreased without changing milk production. However, a decrease in feed costs of 1¢/Mcal of NE_L is not profitable if the cheaper feed reduces milk yield by 10 lb/cow (compare rows 7 and 4 in Table 2). In fact, to be willing to accept a 10 lb drop in milk yield, the producer must achieve a 2¢/Mcal of NE_L decrease in ration costs. Many producers might be better off with fewer cows producing more milk than with more cows at average milk production. For example, one cow producing an average of 80 lb of milk daily would be more profitable than two cows producing 60 lb even if the ration was 30% more expensive per Mcal of NE_L (9¢ versus 7¢; row 8 versus row 2 in Table 2).
   Striving for maximum production does require caution because energy-dense rations do present greater potential for digestive problems and thus, require close monitoring of forage DM content, feed quality, and DM intake of cows. An increase in production without a change in ration composition or price will especially increase profits. This is why successful dairy managers pay close attention to feed intake. Often, feed intake can be increased without a change in ration composition or increase in any other costs. For example, many dairy producers will testify that simply ensuring cows have feed available 24 hours per day can net huge dividends.

Summary
Cows that produce more milk convert feed energy to milk more efficiently and are more profitable. There is considerable financial benefit to increasing production even if more expensive feeds are required. When contemplating making ration changes to either cut costs or enhance production, dairy producers should set production goals and then monitor changes in milk output and feed intake during the change to determine if the ration change was profitable. For example, before making a change that increases the feed cost for a group of cows in early lactation, determine how much extra milk is needed per cow just to cover the cost. Because changes in milk yield are difficult to detect in herds with several groups, closely monitor feed DM intake by the group of cows and multiply by the NE density of the ration to determine if NE intake is increasing. Every extra Mcal of NE consumed is equivalent to about three extra pounds of milk provided the diet is not deficient in other nutrients. Because the NE concentration of forages is difficult to accurately measure, the effect of adding or subtracting purchased feeds from a diet is most easily detected when the forage base of the diet is consistent.

   In conclusion, one of the keys to profitable dairy production is to keep feed costs as low as possible while enabling cows to reach their genetic potential for milk production. However, paying too much attention to feed costs can be an expensive mistake. Actual profits depend on many factors. Higher production should be a goal for all dairy producers, regardless of current production level.

References
¹Farm Credit. 1994. The Northeast Dairy Farm Summary for 1993. Prepared by C.T. Snow, Farm Credit Banks of Springfield, MA.
²VandeHaar, M. 1995. Optimal Level of Milk Production:Nutritional Considerations. Page 135 in Proc. Tri-State Dairy Nutrition Conference, Fort Wayne, IN.