What Are Your Home-Grown Feed Costs?

Cow calf herds rely heavily on home-grown feed. The Benchmark Beef study conducted by the University of Guelph shows that for every dollar of purchased feed the average cow calf herd is spending another four dollars on home-grown feed. But knowing what your home-grown feed costs are can be challenging since the costs can embedded across several expense lines like seed, fertilizer, fuel, repairs, interest and depreciation.

With calculating the home-grown feed cost for your cow calf operation, or any livestock enterprise for that matter, there are two common approaches; using your actual cropping costs or using a market value approach. The first has you keeping all the cropping costs you had for the crops that were fed in the livestock enterprise budget.

The second method extracts all your crop costs out of the livestock enterprise and then "sells" them back to the livestock at market value. Transferring the crop costs at market value back to the cow calf operation can be fairly abstract to wrap your head around. It introduces the concept of opportunity cost which can be equally mind numbing. What this transfer value represents is the value for the crop that you could have received if you sold it instead of fed it. Opportunity cost is what you could have earned with those crops in the next best alternative.

Is one method better than the other? Well they both have some merit.

A common argument against the transfer method is 'I don't ever intend to sell my crop so why do I have to take all my crop expenses out only to "sell" my crop back to my livestock.' It's a valid argument especially if you only grow crops destined to be fed and have no other cash crops. Using your own on-farm records will also accurately reflect the actual costs on your farm.

Where the transfer method comes in handy is at a glance you can quickly find your feed costs because they are clearly labelled as feed (purchased and transferred home-grown feed) and not buried in 8 or 9 different expense lines. To know just how much your home-grown feed cost is using your on farm records you would still need to pull out the crop expenses out of these other expense lines.

The transfer method is also helpful if you have crops that are grown for cash crops as well as crops to be fed. Allocating all the crop costs (feed and cash crops) out and then adding only those costs for the crops that are fed back into the livestock enterprise can give you a purer glimpse of the home-grown feed costs.

One key question the transfer value method answers is whether you are better off producing the feed yourself or is it cheaper to buy in feed. If your home-grown feed costs are less than the transfer value cost it makes sense to grow it as opposed to buying it. It is harder to make that assessment if the crop costs are buried in several expense lines.

Another common argument is 'I can produce feed far cheaper than the market transfer value so my feed costs are lower'. The reality for many cow calf herds is that that is not the case. In the beef cow calf benchmarking study over half of the herds had higher crop costs of production than the market value. From a home-grown feed perspective that suggests that some cow calf herds may be better off purchasing feed than growing it themselves. Or they should at least be having a hard look at their cropping program and figure out ways to put down a less expensive feed package in front of their cows.

Feed costs in the cow calf study were around 60 percent of the total costs. So regardless of the method you use for your cow calf herd it is well worth the effort of pencilling it out.

Calculate your feed costs using OMAFRA's Ontario Enterprise Budgets

Learn more about calculating and using your cost of production for farm-level decision-making by reading OMAFRA's Guide to Cost of Production Budgeting factsheet

Click here to view other Virtual Beef articles

For more information:
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E-mail: ag.info.omafra@ontario.ca