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Handling High Commodity Prices- Normand St-Pierre

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Dr. Normand St-Pierre of The Ohio State University presented this information as part of DAIReXNET's webinar entitled "Handling High Commodity Prices" on September 14, 2011.

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Handling High Commodity Prices- Normand St-Pierre

  1. 1. Handling High Commodity Prices Normand St-Pierre, Ph.D., P.A.S. The Ohio State University Copyright 2011, N. St-Pierre, The Ohio State University
  2. 2. Realities High(er) commodity prices are likely with us for the long-run… Dairy producers are NOT defenseless  Change in thinking and attitude  Sharper pencil Copyright 2011, N. St-Pierre, The Ohio State University
  3. 3. A Few Questions• Is corn expensive? Copyright 2011, N. St-Pierre, The Ohio State University
  4. 4. Corn, U.S. No 2 Yellow FOB Gulf of Mexico, US dollars per metric ton July 1991 – July 2011Source: International Monetary Fund Copyright 2011, N. St-Pierre, The Ohio State University
  5. 5. A Few Questions• Is corn expensive? • From a HISTORICAL perspective, YES. Dah! Copyright 2011, N. St-Pierre, The Ohio State University
  6. 6. What Can Be Done? Shop better! Copyright 2011, N. St-Pierre, The Ohio State University
  7. 7. What Can Be Done? Shop better!  Finding the same feed, but cheaper somewhere else.  Make sure that you are comparing apples to apples.  Commodities can have the same name but different specifications.  Feeds are often bought with services bundled in.  Forage analyses, ration balancing  These services have a value, but make sure that:  1. You require these services  2. They are delivered at a competitive price Copyright 2011, N. St-Pierre, The Ohio State University
  8. 8. What Can Be Done? Shop better!  Finding the same feed, but cheaper somewhere else.  Make use of cash discounts  Manage your cash-flow  1% discount for paying 15 days early is equal to an APR greater than 25%. Copyright 2011, N. St-Pierre, The Ohio State University
  9. 9. What Can Be Done? Shop better!  Finding the same feed, but cheaper somewhere else.  Make use of cash discounts  Avoid credit card balances Copyright 2011, N. St-Pierre, The Ohio State University
  10. 10. What Can Be Done? Shop better!  Finding the same feed, but cheaper somewhere else.  Make use of cash discounts  Avoid credit card balances  Make sure that you are getting what you paid for… (and that you know what you are paying for…) Copyright 2011, N. St-Pierre, The Ohio State University
  11. 11. What Can Be Done? Shop better! Shop wiser! Copyright 2011, N. St-Pierre, The Ohio State University
  12. 12. What Can Be Done? Shop wiser!  Finding underpriced feeds  Not the same as “cheap feeds”  Avoiding overpriced feeds  Not the same as “expensive feeds”  Comparing feed ingredients with different nutritional composition Copyright 2011, N. St-Pierre, The Ohio State University
  13. 13. It’s like buying a house! What is this house worth? Copyright 2011, N. St-Pierre, The Ohio State University
  14. 14. It’s like buying a house! Or this one? Copyright 2011, N. St-Pierre, The Ohio State University
  15. 15. It’s like buying a house! Or these houses? Copyright 2011, N. St-Pierre, The Ohio State University
  16. 16. House Value Different houses have different attributes. We can price the house attributes (square feet, number of bedrooms, number of bathrooms, square yards of backyard, high school average scores on SAT/ACT, etc…) if we have many houses that sold and their attributes. Copyright 2011, N. St-Pierre, The Ohio State University
  17. 17. The Need To compare feedstuffs of different composition on an economic basis. To determine the cost of nutrients. Copyright 2011, N. St-Pierre, The Ohio State University
  18. 18. Assumptions Feedstuffs are worth their content of nutrients Buyers and sellers of feedstuffs are coherent and rational  Markets are competitive but need time (lag) to adjust. Copyright 2011, N. St-Pierre, The Ohio State University
  19. 19. The Peterson Method Applied to Energy and Crude Protein Price DM % CP (%) NEl (Mcal/lb)Corn $ 150 88 10.0 0.89Soybean Meal $ 300 90 55.1 0.91 Copyright 2011, N. St-Pierre, The Ohio State University
  20. 20. The Peterson Method:Using Corn and Soybean MealCorn: 150 = 176 $CP + 1566 $NESoybean: 300 = 992 $CP + 1638 $NE Copyright 2011, N. St-Pierre, The Ohio State University
  21. 21. The Peterson Method: Value of Crude ProteinUsing Corn and Soybean Meal In one Ton of CornCorn: 150 = 176 $CP + 1566 $NESoybean: 300 = 992 $CP + 1638 $NE Copyright 2011, N. St-Pierre, The Ohio State University
  22. 22. The Peterson Method: Value of Crude Protein Value of EnergyUsing Corn and Soybean Meal In one Ton of Corn In one Ton of CornCorn: 150 = 176 $CP + 1566 $NESoybean: 300 = 992 $CP + 1638 $NE Copyright 2011, N. St-Pierre, The Ohio State University
  23. 23. The Peterson Method:Using Corn and Soybean MealCorn: 150 = 176 $CP + 1566 $NESoybean: 300 = 992 $CP + 1638 $NETwo equations with two unknowns... Copyright 2011, N. St-Pierre, The Ohio State University
  24. 24. The Peterson Method:Using Corn and Soybean MealCorn: 150 = 176 $CP + 1566 $NESoybean: 300 = 992 $CP + 1638 $NE $CP = $0.177/lb $NE = $0.076/Mcal Copyright 2011, N. St-Pierre, The Ohio State University
  25. 25. Problems with the Peterson Method:Using Corn and Soybean Meal• Assumes that corn and soybean meal (barometer feeds) are always perfectly priced • Both are never over- or under-priced• Values only energy and crude protein• Method implies irrational buyers and sellers • Buyers would keep buying “overpriced” commodities • Sellers would keep selling “underpriced” commodities Copyright 2011, N. St-Pierre, The Ohio State University
  26. 26. Overcoming the Problems Sesame uses prices and composition of all feeds traded in a given market to calculate the cost of the nutrients. Sesame uses the economically important nutrients to assess the economic value of a feed. Copyright 2011, N. St-Pierre, The Ohio State University
  27. 27. Reminders There are no “requirements” in Sesame  Market information back captures the implicit state of supply and demand Sesame does not look whether a feed “fits”  Fitting is tactical; Sesame is strategic Selection of different nutrients yields different economic values  Economic value is not the same for a hog and a cow  Economic value is not the same for elite producers vs. average producer Copyright 2011, N. St-Pierre, The Ohio State University
  28. 28. PA – 8/29/2011Copyright 2011, N. St-Pierre, The Ohio State University
  29. 29. PA – 8/29/2011Copyright 2011, N. St-Pierre, The Ohio State University
  30. 30. PA – 8/29/2011Copyright 2011, N. St-Pierre, The Ohio State University
  31. 31. PA – 8/29/2011Copyright 2011, N. St-Pierre, The Ohio State University
  32. 32. Soybean Meal – 48% Copyright 2011, N. St-Pierre, The Ohio State University
  33. 33. False Savings?• “I grew it, so it is not as expensive to feed my cows!” Copyright 2011, N. St-Pierre, The Ohio State University
  34. 34. False Savings?• “I grew it, so it is not as expensive to feed my cows!” • So, the person selling your corn is either an incompetent or an imbecile! Copyright 2011, N. St-Pierre, The Ohio State University
  35. 35. What is the new nutritional economics era? • Dietary energy (NEL) costs well above historical average (casualty of grain ethanol ???) • Discounted RDP prices (dependent on amount of grain processing) • Variable d-RUP prices (should follow the “protein” market but with greater fluctuation amplitudes) • Discounted ne-NDF prices (depends on supply/demand for “processed” dietary fiber) • Expensive e-NDF (casualty of grain ethanol ???) Copyright 2011, N. St-Pierre, The Ohio State University
  36. 36. 2004 2008 ---- lbs as fed per day ----Legume hay 4.2 4.2Legume silage 19.5 19.5Corn silage 37.0 37.0Brewers grains, wet 13.8 -Whole cottonseed 5.0 2.75Corn, ground 15.0 11.25Soymeal 44% 2.25 -Soymeal, expeller 2.25 2.75DDGS - 3.33Hominy - 2.25Gluten feed - 2.75Wheat middlings - 2.75Tallow 0.5 -Minerals and Vits 1.5 1.5 Copyright 2011, N. St-Pierre, The Ohio State University
  37. 37. 2004 2008 ---- lbs as fed per day ----Legume hay 4.2 4.2Legume silage 19.5 19.5Corn silage 37.0 37.0Brewers grains, wet 13.8 -Whole cottonseedSame amounts of forage 5.0 2.75 fedCorn, ground 15.0 11.25Soymeal 44% 2.25 -Soymeal, expeller 2.25 2.75DDGS - 3.33Hominy - 2.25Gluten feed - 2.75Wheat middlings - 2.75Tallow 0.5 -Minerals and Vits 1.5 1.5 Copyright 2011, N. St-Pierre, The Ohio State University
  38. 38. 2004 2008 ---- lbs as fed per day ----Legume hay 4.2 4.2Legume silage 19.5 19.5Corn silage 37.0 37.0Brewers grains, wet 13.8 -Whole cottonseed 5.0 2.75 15.0 11.25Corn, ground Eliminate Wet brewers grainsSoymeal 44% 2.25 -Soymeal, expeller 2.25 2.75DDGS - 3.33Hominy - 2.25Gluten feed - 2.75Wheat middlings - 2.75Tallow 0.5 -Minerals and Vits 1.5 1.5 Copyright 2011, N. St-Pierre, The Ohio State University
  39. 39. 2004 2008 ---- lbs as fed per day ----Legume hay 4.2 4.2Legume silage 19.5 19.5Corn silage 37.0 37.0Brewers grains, wet 13.8 -Whole cottonseed 5.0 2.75Corn, ground 15.0 11.25Soymeal 44% 2.25 -Soymeal, expeller whole cottonseed 2.75 nearly Cut 2.25 by halfDDGS - 3.33Hominy - 2.25Gluten feed - 2.75Wheat middlings - 2.75Tallow 0.5 -Minerals and Vits 1.5 1.5 Copyright 2011, N. St-Pierre, The Ohio State University
  40. 40. 2004 2008 ---- lbs as fed per day ----Legume hay 4.2 4.2Legume silage 19.5 19.5Corn silage 37.0 37.0Brewers grains, wet 13.8 -Whole cottonseed 5.0 2.75Corn, ground 15.0 11.25Soymeal 44% 2.25 -Soymeal, expeller 2.25 2.75DDGS Reduce ground corn by 25% - 3.33Hominy - 2.25Gluten feed - 2.75Wheat middlings - 2.75Tallow 0.5 -Minerals and Vits 1.5 1.5 Copyright 2011, N. St-Pierre, The Ohio State University
  41. 41. 2004 2008 ---- lbs as fed per day ----Legume hay 4.2 4.2Legume silage 19.5 19.5Corn silage 37.0 37.0Brewers grains, wet 13.8 -Whole cottonseed 5.0 2.75Corn, ground 15.0 11.25Soymeal 44% 2.25 -Soymeal, expeller 2.25 2.75DDGS - 3.33Hominy Eliminate conventional2.25 - soybean mealGluten feed - 2.75Wheat middlings - 2.75Tallow 0.5 -Minerals and Vits 1.5 1.5 Copyright 2011, N. St-Pierre, The Ohio State University
  42. 42. 2004 2008 ---- lbs as fed per day ----Legume hay 4.2 4.2Legume silage 19.5 19.5Corn silage 37.0 37.0Brewers grains, wet 13.8 -Whole cottonseed 5.0 2.75Corn, ground 15.0 11.25Soymeal 44% 2.25 -Soymeal, expeller 2.25 2.75DDGS - 3.33Hominy Slight increase in expeller soymeal - 2.25Gluten feed - 2.75Wheat middlings - 2.75Tallow 0.5 -Minerals and Vits 1.5 1.5 Copyright 2011, N. St-Pierre, The Ohio State University
  43. 43. 2004 2008 ---- lbs as fed per day ----Legume hay 4.2 4.2Legume silage 19.5 19.5Corn silage Heavy37.0 of by-products use 37.0Brewers grains, wet 13.8 - - Multiple 5.0Whole cottonseed sources reduces total 2.75Corn, ground diet variation 11.25 15.0Soymeal 44% 2.25 -Soymeal, expeller 2.25 2.75DDGS - 3.33Hominy - 2.25Gluten feed - 2.75Wheat middlings - 2.75Tallow 0.5 -Minerals and Vits 1.5 1.5 Copyright 2011, N. St-Pierre, The Ohio State University
  44. 44. 2004 2008 ---- lbs as fed per day ----Legume hay 4.2 4.2Legume silage 19.5 19.5Corn silage 37.0 37.0Brewers grains, wet 13.8 -Whole cottonseed 5.0 2.75Corn, ground 15.0 11.25Soymeal 44% 2.25 -Soymeal, expeller 2.25 2.75DDGS - 3.33Hominy - Eliminate tallow 2.25Gluten feed - 2.75Wheat middlings - 2.75Tallow 0.5 -Minerals and Vits 1.5 1.5 Copyright 2011, N. St-Pierre, The Ohio State University
  45. 45. 2004 2008Dry matter (lbs/day) 51.3 51.3NEL (Mcal/lb) 0.735 0.734 ---- % of DM ----CP 17.0 16.7RDP 11.3 10.8RUP 5.6 5.8MP 10.6 10.6NDF 32.2 33.3NFC 42.5 42.8Ether extracts 5.7 4.6 Copyright 2011, N. St-Pierre, The Ohio State University
  46. 46. 2004 2008Dry matter (lbs/day) 51.3 51.3NEL (Mcal/lb) 0.74 0.73 ---- % of DM ----CP 17.0 16.7RDP 11.3 10.8RUP 5.6 5.8MP 10.6 10.6NDF 32.2 33.3NFC 42.5 42.8Ether extracts 5.7 4.6Cost ($/cow per day) 6.10 5.52(using 2008 prices) Difference of $0.58/cow/day Copyright 2011, N. St-Pierre, The Ohio State University
  47. 47. What Can Be Done? Shop better! Shop wiser! Avoid the black holes! Copyright 2011, N. St-Pierre, The Ohio State University
  48. 48. What Can Be Done? Avoid the black holes!  Shrinkage of commodities  Often exceeds 5%  DM shrinkage of silages Copyright 2011, N. St-Pierre, The Ohio State University
  49. 49. Pricing home-grown corn silage Copyright 2011, N. St-Pierre, The Ohio State University
  50. 50. Pricing home-grown corn silage 10% $6.10 $67.10 Copyright 2011, N. St-Pierre, The Ohio State University
  51. 51. What Can Be Done? Shop better! Shop wiser! Avoid the black holes! Don’t cut the corners! Copyright 2011, N. St-Pierre, The Ohio State University
  52. 52. What Can Be Done? Don’t cut the corners!  Value of multiple rations Copyright 2011, N. St-Pierre, The Ohio State University
  53. 53. Nutritional Grouping: Benefits More “precise” nutrition  Diets are closer to the nutritional requirements of all animals in the group Reduced feed costs  Lower lead factors (safety margins)  Better targeting of feed additives and value-added feeds Improved production Better control of body condition Reduced nutrient excretion Copyright 2011, N. St-Pierre, The Ohio State University
  54. 54. Nutritional Grouping: Disadvantages  A pain in the b…  Transient reduction in production  Labor and management demand  More complicated to feed, etc.  A pain in the b… worth ~ $0.25/cow/day! Copyright 2011, N. St-Pierre, The Ohio State University
  55. 55. What Can Be Done? Don’t cut the corners!  Value of multiple rations  Avoid steep changes in diet composition  Move large number of animals at once  Reduced effects in large pens  Group for other things than breeding status Copyright 2011, N. St-Pierre, The Ohio State University
  56. 56. Number of Lactation Diets Practical recommendations:  <100 cows: 1 group  100-300: 2 groups  >300: 3 groups Copyright 2011, N. St-Pierre, The Ohio State University
  57. 57. What Can Be Done? Shop better! Shop wiser! Avoid the black holes! Don’t cut the corners! Using feed additives to hide management flaws! Copyright 2011, N. St-Pierre, The Ohio State University
  58. 58. What Can Be Done? Shop better! Shop wiser! Avoid the black holes! Don’t cut the corners! Using feed additives to hide management flaws! Reduce the welfare checks! Copyright 2011, N. St-Pierre, The Ohio State University
  59. 59. The Welfare Checks Reduce the welfare checks!  Dry cows and replacement heifers are welfare recipients.  Their welfare checks are written by the lactating cows. Copyright 2011, N. St-Pierre, The Ohio State University
  60. 60. The Welfare Checks Copyright 2011, N. St-Pierre, The Ohio State University
  61. 61. The Welfare Checks Copyright 2011, N. St-Pierre, The Ohio State University
  62. 62. The Welfare Checks Copyright 2011, N. St-Pierre, The Ohio State University
  63. 63. The Welfare ChecksA 30% reduction in net income… Copyright 2011, N. St-Pierre, The Ohio State University
  64. 64. Handling high commodity prices What do you think? Copyright 2011, N. St-Pierre, The Ohio State University
  65. 65. Thank You

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