Total mixed dairy rations (TMR) offer an opportunity to improve business profits through improved animal performance and health, decreased feed wastage, improved labor efficiency and improved butterfat. The installation of a TMR system normally requires added investments in feed mixing and distribution equipment. The purpose of this publication is to provide a format for evaluating the economic consequences of changing to a TMR system.Reviewed October 1993 -- Extension website

Bennett, Myron

Osburn, Donald D.

Spain, James Nobles, 1962-

Williams, David L., 1935-

University of Missouri: MOspace

Dairy Feeding AGRICULTURAL MU Guide PUBLISHED BY UNIVERSITY EXTENSION, UNIVERSITY OF MISSOURI·COLUMBIA Total Mixed Dairy Rations on Your Farm? Myron Bennett and Donald Osburn, Department of Agricultural Economics Jim Spain, Department of Animal Science David Williams, Department of Agricultural Engineering Total mixed dairy rations (TMR) offer an oppor­tunity to improve business profits through improved animal performance and health, decreased feed wastage, improved labor efficiency and improved butterfat. The installation of a TMR system normally requires added investments in feed mixing and distri­bution equipment. Additional storage facilities may be required as well. With a TMR system, each bite is a balanced diet. For small herds, a limiting factor influencing milk pro­duction is balancing the ration for the broad range of production levels within the herd. Diets too low in energy and protein may limit production of early lac­tating cows or result in thin cows with lower produc­tion and reduced reproductive efficiency. In contrast, diets too high in energy and protein can result in over­conditioned cows at freshening with fat-eow problems. In larger herds, cows can be grouped more homoge­neously to better balance for nutrient requirements. In considering the use of TMR, several advan­tages and limitations are important to consider. The expected benefits, costs and capital investments asso­ciated with TMR systems were researched and the results reported in Extension publication MP 662, "Total Mixed Dairy Rations: Costs and Benefits by Herd Size." Refer to this publication for details regarding the implementaton of a TMR system for your farm. You are urged to read this publication prior to working through the economic analysis included in this guide. The purpose of this guide is to provide a format for evaluating the economic consequences of chang­ing to a TMR system. Planning will enable you to determine what investments, labor costs, power costs, etc., are needed to implement the system before mak­ing new investments or changes in your operation. Adopting the TMR feeding system will change your dairy enterprise costs and returns. To evaluate this change, the following partial budgeting proce­dure (economic analysis) will allow you to balance expected total gains against losses that will result if you switch from parlor grain feeding to a TMR. The following budgeting procedure allows you to estimate (1) added capital investments needed to make the change; (2) added returns from increased milk production, higher butterfat test, and reduced feed wastage; and (3) added costs associated with the TMR system. This "ballpark" analysis will help deter­mine if the potential added returns will outweigh the added costs, indicating whether the proposed change will be profitable for your operation. Brief instructions follow: 1. Section A is available to think through and outline the additional cost of equipment and build­ings that are needed to switch to the TMR feeding system. Be as acc;urate as possible on your needs and cost of each investment. 2. Section B provides a procedure for entering present average milk production per cow and esti­mating the increase in milk production per cow with TMR (3-10%) and future average milk price per cwt. for planning purposes. Items 1 and 2 provide a method of calculating the value of increased milk pro­duction for the total herd. Item 3 is provided to calcu­late the added returns resulting from TMR due to reduced feed wastage. Research has indicated a 3 to 5 percent reduction in feed wastage. Guides for feed cost per cow are shown based on different levels of milk production (rolling herd average). If you know your total feed costs per cow (forage, pasture and concentrate), use your own costs rather than the guides. Item 4 is available to include other added returns such as reduced veterinary and medicine costs due to more healthy cows, etc. (You should have a good, reliable reason for these values.) 3. Section C is available for itemizing appropri­ate costs associated with the TMR system. Items 1 and 2 provide formulas for calculating additional feed and labor costs. Item 3 provides guidelines and a method for cal­culating tractor power costs that are necessary to operate the mixer wagon and front-end loader. Tractor costs are allocated to TMR on a cost per hour of operation basis because the tractor is usually used $.75 G 3106 Printed with Soy Ink for other business activities. Thus this is an easy method of allocating this specific cost to TMR. Because labor and machinery operate together, the hours per cow are the same as the labor hours used in Item 2. Also, you can use variable or total costs per hour of tractor operation. For example, if the tractor you plan to use is an older tractor that is fully depre­ciated, it would be appropriate to use variable costs only. But if you have a newer tractor or have to pur­chase a tractor specifically for the TMR system, you should use total costs per hour of operation to calcu­late power costs. Items 4 and 5 are self-explanatory. Just fill in the blanks and calculate the answer. Note that the mar­keting costs in Item 4 are based on hundredweight of milk, not pounds. Item 6 may not be a cost to you. If it isn't, leave it blank. 4. Section D is available to calculate the potential gain or loss from the switch to the TMR sys­tem. If line 3 is negative, there is no need to calculate the rate of return on line 4. Partial Budget Analysis Change considered: Switch to total mixed dairy ration from present feeding system described as Section A: Added Capital Investments Needed to Make Change· 1. Equipment: 2. BUildings and facilities:··· Roller mill $--­ Commodity building $--­Mixer wagon with scales·* $--­ Additional bunk space $--­Front-end loader $--­ Lot fences for cow grouping $--­Other $--­ Other $--­Total $ Other $ Section B: Added Returns and/or Reduced Costs Estimated increase in value of milk production: Present average annual milk production/cow is ___Ibs.(a) Expected increase in production per cow (guide 3-10%) ___Ibs.(b) Projected milk price (3.5%)/cwt. $ plus value for 0.1 % butterfat ¢/cwt. is projected price for 3.6% milk $, (c) 1. Value of increased milk production __no. cows x (b) Ibs. increase/cow = totallbs. milk + 100 = cwt. x $ (c) price for 3.6% milk = $, _ 2. Increased value of butterfat for present production no. cows x (a) Ibs. present production/cow = ___totallbs. milk + 100 = cwt. x ¢/cwt. per 0.1 % added butterfat = $, _ 3. Reduced feed wastage (3-5% of total feed cost) Feed cost guides based on 12,500 Ibs. =$1,050 18,000 Ibs, =$1,250 milk production per cow: 15,000 Ibs. =$1,150 20,000 Ibs. =$1,300 __no. cows x $ feed/cow = total value fed x__% wastage = $ _ 4. Other returns or reduced costs (i.e., salvage value of old feeding system) $'---__ 5. Total estimated added returns (add lines 1 through 4) $'---__ *Refer to MP 662, page 13, for itemized list and cost of new TMR equipment. **Know horsepower requirement to operate. Will you need to buy a tractor to operate or can you use your present tractor? ***Do not include hay, grain or silage storage investments. Feed costs included in Section 83 are based on market value plus transportation and storage costs, therefore investments for hay, grain and silage storage should not be included. Page 2 G 3106 Section C: Added Costs and/or Reduced Returns Associated with the TMR System 1. Added feed cost· (Use only the extra grain ration required for the added production.) Increased milk production Ibs./cow ... ___,milk/feed ratio** (guide 2-3 Ibs.) = ___I,bs. grain ration x ¢/Ib. x no. cows = $._-­2. Labor costs Guides for added labor for TMR system per cow by herd size: 100-cow herd-5.5 hrs.lcow 200-cow herd-4.1 hrs.lcow 300-cow herd-3.7 hrs.lcow 500-cow herd-3.6 hrs.lcow ___,hrs./cow x ,no. cows x $'--_----!/hr. = $--­3.Power costs (Use variable costs for tractors presently owned and total costs for purchased tractor for the TMR system.) Guides for tractor costs: Tractor Costs per hour operation bg, ~ Ill1al 50 $3.35 $7.50 60 $3.75 $8.50 90 $5.63 $12.50 100 $6.75 $15.00 ___,hrs./cow (same as labor hours in item 2) x __---'no. cows x $ /hr. (costs/hour based on tractor hp) = $'----­4. Marketing costs of milk ___Ibs. increased milk/cow x ,no. cows = ___totallbs. milk ... 100 = cwt. x 75¢/cwt. = $--­5. Fixed costs associated with new capital investments Equipment investment $ (line A1) x 23% = $, (a) Buildings and facilities investment $ (line A2) x 14.2% = $ (b) Total fixed costs (add lines a and b) $ (c) 6. Nutrition consultation, feed analysis, computer programs $ cost per cow (guide $6-$18/cow) x no. cows = $._-­7. Other added costs or reduced returns $._-­8. Total added costs (add lines 1, 2, 3, 4, 5c, 6 and 7) $,--­*Added feed costs include only the concentrate feed necessary to produce the added milk production. This assumes that the feed required to produce the original production has not changed. **Milk/feed ratio is pounds of milk per pound of feed fed. G 3106 Page 3 Section D: Analysis (Analysis shows the potential gains or losses from the switch to the TMR feeding system.) 1. Total estimated added returns (section B, line 5) $--­2. Minus estimated total added costs (section C, line 8) $'---­3. Equals profit or loss from TMR (line 1 minus line 2) $--­4. Average rate of return on investment· Profit (line 3) $ + $ average investment on new investment** + $ total new investment x 100 = return on initial investment --_% "For the change to TMR to be profitable, the percent return should be at least 7-8 percent. If providing added purchases from business earnings or savings, compare to returns from a Certificate of Deposit or other alternative. If purchases are financed, compare rate of return with cost of borrowed money. **Average interest on new investment is total new investments (Section A, line 1 + line 2) $ x 6 percent average interest rate (equivalent to 12 percent APR). Summary The Partial Budget Analysis Worksheet allows you to estimate the rate of return from the investment needed to implement a total mixed ration system in your dairy operation. The answer calculated on line 03 indicates whether the change has a potential of pro­ducing a positive or negative annual profit. Line 04 converts the dollar profit into a percent return to the additional capital needed to make the change, Le., from parlor feeding to TMR system. For this reason the major capital investments needed for the TMR system should be identified and analyzed as accurately as pos­sible. The actual increase in milk production and the milk price received will vary. Therefore, two or more analyses based on different levels of increased milk production per cow such as 500, 750, 900,1,200 pounds and at different price levels such as $11, $12, $13/cwt. should be calculated. At least a best-case and worst­case scenario should be thought through and analyzed to develop a bracket in which you will be operating. Producers who feed balanced, palatable rations can expect less productive gains from TMR (lower ben­efit levels) than others whose rations fall short of nutri­tional requirements. Under such conditions, producers should experience the higher gains per cow. Another important consideration is the investment requirement from a total business perspective. If high­er outlays for equipment and power are required and must be obtained by borrowing money, debt service becomes an important risk consideration. This could be judged in terms of cash flow obligations to service debt and whether the added debt influences the financial statement of the total business in an adverse fashion (debt/equity ratio). Page 4 G 3106 Partial Budget Analysis (Example) Change considered: Switch to total mixed dairy ration from present feeding system described as {{"lor ftul,~ wiU- t;r4\1" -kJ OlJ'Itsik /Oq I/O-CD'" Acr-l Section A: Added Capital Investments Needed to Make Change* 1. Equipment: 2. Buildings and facilities:··· Roller mill Mixer wagon with scales" $ ~Soo $ Z~O<' Commodity building Additional bunk space $ /6 000 I $ ~OIJO Front-end loader $/(1.11' ol1t Lot fences for cow grouping $ 1,20()i Other $ Other $._-­Total $Ia 700 Other $ I', SOD Section B: Added Returns and/or Reduced Costs Estimated increase in value of milk production: Present average annual milk production/cow is 15.000 Ibs.(a)I Expected increase in production per cow (guide 3-10%) goo Ibs.(b) Projected milk price (3.5%)/cwt. $ lJ· 50 plus value for 0.1 % butterfat 10 ¢/cwt. is projected price for 3.6% milk $ //.&0 (c) 1. Value of Increased milk production J.}Lno. cows x t5fJO (b) Ibs. increase/cow = cgi.OOOtotallbs. milk+ 100 = Z~ cwt. x $ 1/.60 (c) pricefo~i1k = $ 10,208 2. Increased value of butterfat for present production JJLno. cows x IS(OOO (a) Ibs. present production/cow = 1/6S0,oOQlotallbs. mi k + 100 = ",SofJ cwt. x }O ¢/cwt. per 0.1 % added butterfat = $ 1,6SO 3. Reduced feed wastage (3-5% of total feed cost) Feed cost guides based on 12,SOO Ibs. = $1,050 18,000 Ibs. = $1,2SO milk production per cow: 15,000 Ibs. = $1,150 20,000 Ibs. = $1,300 ~no. COWS x $ ',ISO feed/cow = total value fed x_3_% wastage = $ 3,7lJS 4. Other returns or reduced costs (I.e., salvage value of old feeding system) $ D 5. Total estimated added returns (add lines 1 through 4) $ JS.6S3• Section C: Added Costs and/or Reduced Returns Associated with the TMR System 1. Added feed cost· (Use only the extra grain ration required for the added production.) Increased milk production 'ZOO Ibs.lcow + .:l.S milklfeed ratio" (guide 2-3 Ibs.) = :3~(J Ibs. grain ration x ].$ ¢/Ib. x 110 no. cows = 2. Labor costs Guides for added labor for TMR system per cow by herd size: 10o-cow herd-5.5 hrs.lcow 200-cow herd--4.1 hrs.lcow 300-cow herd-3.7 hrs.lcow SOO-cow herd-3.6 hrs.lcow 5.3 hrs.lcow x /10 no. cows x $ 6 /hr. = G 3106 PageS 3.Power costs (Use variable costs for tractors presently owned and total costs for purchased tractor for the TMR system.) Guides for tractor costs: Tractor Costs per hour operation lm YiI.dab.W. IQ1al 50 $3.35 $7.50 60 $3.75 $8.50 90 $5.63 $12.50 100 $6.75 $15.00 5.3 hrs./cow (same as labor hours in item 2) x 110	 no. cows x $ 3.7'5 /hr. (costslhour based pn tractor hp) = 60l...p 1r-.<..Jor -~t.prc.(.I~.( ollt 4. Marketing costs of milk W Ibs. increased milk/cow x 110 no. cows = cg~ 000 totallbs. milk + 100 = ~O cwt. x 75¢/cwt. = $ Ito 5. Fixed costs associated with new capital investments Equipment investment $ 10 700 (line A1) x 23% = $ :Z. WI (a)1	 • Buildings and facilities investment $19. ~oo (line A2) x 14.2% =	 $ ~76~ (b) Total fixed costs (add lines a and b)	 $ ~rl30 (c) 6. Nutrition conSUltation, feed analysis, computer programs $	 S cost per cow (guide $6-$18/cow) x I/o no. cows = $ SSO (tor4\t<, Q"\~I~iS a,,,,./ r"../io,,\ ~S.,H..+,·.... )7. Other added costs orleducetf returns	 $ 0 8. Total added costs (add lines 1, 2, 3, 4, 5c, 6 and 7) $/~7&" Section 0: Analysis (Analysis shows the potential gains or losses from the switch to the TMR feeding system.) 1. Total estimated added returns (section B, line 5)	 $ 15,653 2. Minus estimated total added costs (section C, line 8)	 $ /'L 76'1 3. Equals profit or loss from TMR (line 1 minus line 2)	 $ g8~ 4. Average rate of return on Investment-Profit (line 3) $ ~ + $ 4B'12. average investment on new investment** + $ 3~200 total new investment x 100 = return on initial investment '8'.9 % *For the change to TMR to be profitable, the percent return should be at least 7-8 percent. If providing added purchases from business earnings or savings, compare to returns from a Certificate of Deposit or other alternative. If purchases are financed, compare rate of return with cost of borrowed money. **Average interest on new investment is total new investments (Section A, line 1 + line 2) $ 3c'J200x 6 percent average interest rate (equivalent to 12 percent APR). ~~ University • Issued in furtherance of Cooperative Extension Work Acts of May 8 and June 30, 1914 in cooperation with the United States Department of Agriculture. Gail L. Imig, Director, \...;.I Extension Cooperative Extension Service, University of Missouri and Lincoln University, Columbia, UNIVERSITY OF MISSOURI Missouri 65211.. An equal opportunity institution. COLUMBIA Page 6	 G 3106 New 4/91/5M 

Total mixed dairy rations on your farm? (1991)

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