Pricing high moisture feeds
by Mark Roth M.S. P.A.S.
Another harvest has gone into the books. Feedyards have made the transition to new crop corn and sorghum and will likely encounter some with excess moisture. Yards may also be feeding from new pits of silage or haylage. Managers are still receiving pulp and tailings from sugar factories, and there is a continual supply of wet byproducts from breweries, ethanol plants, and wet corn mills.
Careful attention to details are necessary to accurately buy and resell these wet feeds and maintain the margins at targeted levels. The first step is to reach an agreement with the feed supplier as to the base moisture and how that moisture will be determined: load-by-load, daily average, average over the whole contract, etc. An example of the specificity needed would be buying corn silage at $40.00/ton delivered to the pit based on 68 percent moisture where it’s agreed that the moisture will be adjusted daily, based on a minimum of three samples with no sample taken before 10:00 a.m. (so it’s not affected by dew).
These next steps will be the same for any commodity, regardless of moisture. Cattlemen must always remember that whether you are adding moisture or removing moisture, the dry matter quantity doesn’t change. Always work with dry matter, never moisture.
Let’s continue with our silage example and say that on a particular day we received 1,000 tons across the scale, and that the three tests averaged 73 percent. Calculate the pay weight of the 1,000 tons as shown below: t (FIG.)
The supplier is owed 843.75 tons pay weight x $40/ton = $33,750.00. This process is repeated for each supplier, each day, until harvest is complete. Records should also be kept by field as there will be different landlords or splits, so pay weights would be calculated for each supplier by field by day.
Now that we know our totals for scale weight, pay weight, and dollars for the delivered silage crop, the next step is to determine the price used to bill the silage back into the ration. The yard paid to put an inoculant on it, used feedyard personnel to push and pack the silage, covered it with plastic and trees, and it will shrink some – so what is the best way to calculate the price?
Using the previous numbers as if they were the totals, the inoculant cost 50¢/ton and the cost to pack and cover it is $2.00/ton. Both of these tonnages will be scale weight. The shrink will vary from less than 10 percent for a well managed bunker to 25 percent for an open ground pile. The operation should track its shrink history and be working toward continual improvement. Shrink should be figured against the pay weight. In this example there is a well managed bunker and 10 percent shrink is used. The pricing calculation will be: t (FIG.)
Next, accurately determine the cost for each ingredient. For this example, don’t mark up individual ingredients. Instead, put the margin on the ration price. If it’s flaked, put the cost of flaking on x 1,000 tons = 843.75 tons the grain. Costs must back out the value of the inventory appreciation, so maybe add $3 or $4/ton for electricity and natural gas to flake, but back off $7 or $8/ton for inventory gain. Thus, price the flakes (at 21 or 22 percent moisture) $3 to $5/ton less than the incoming corn cost.
Providing your nutritionist with these accurate ingredient costs (into the bunk) and dry matters will allow him/her to formulate the most economical formula on a dry matter basis.
Calculating the ration mark-up is simply determining the average consumption for the ration (provided on all computerized billing programs), then dividing 2,000 by the consumption to get head days/ton, and then multiplying by the targeted margin from feed. If the average consumption of the finish ration is 32.4 lbs/hd/day, then 2,000 ÷ 32.4 = 61.7 head days/ton. If the markup is 40¢/hd/day from feed, then the mark-up for that ration is $24.68/ton. By monitoring and adjusting each billing period, feedyards will be on top of controlling the margins as ration moisture, cattle weights or types, and weather fluctuate. ©