Haag, Herman M., 1903-

University of Missouri: MOspace

UNIVERSITY OF MISSOURI COLLEGE OF AGRICULTURE AGRICULTURAL EXPERIMENT STATION M. F . MILLER, Direct01' CIRCULAR 230 Columbia, Mo. APRIL,1942 Using Feed Price Information to Reduce Production Costs HERMAN M. HAAG In the war effort to produce more meat, milk and eggs, emphasis is being placed on getting the major part of this increase not from larger numbers of livestock and poultry but from better feeding. Furthermore, in order that this program of increased production may go forward on a sound economical basis, it is necessary not only to feed the proper rations but to provide the required nutrients at the lowest possible cost. Economical feeding involves not only the choice of the feedstuffs that will provide the required quantity and quality of nutrients at the lowest possible cost but also the purchase of sueh feedstuffs at the right time to take advantage of seasonal price movements and gen-eral price-level trends. This sounds simple but the job is really com-plex because a ration which is the ebeapest source of nut.ricnts at one time of the year may be expensive in some other season. Though economical feeding' is always important if satisfactory re-turns are to be obtained from livestock enterprises, the producer's interest in feed costs varies with the feed-price situation. Favored during the past year with relatively cheap feed grains, producers have made some profit even with feeding practices that would have been disastrous in normal times. More recently, however, feed grain prices have been rising in relation to prices of animals and animal products, and this trend is expected to continue during the next year. Hence, farmers may be faced with normal or even some sub-normal product-feed price ratios by this time next year. Under such conditions, economy in feeding will again receive major consideration. Producers can either buy their feed supplies as needed or they can take advantage of the seasonal low in prices of each feedstuff to buy enough supplies to carry through the season of higher prices. Which policy will prove more economical depends upon the seasonal variation in prices of the feed and its cost of storage. The seasonal fluctuation in prices of grey shorts, for example, does not appear great enough under normal conditions to warrant their 2 MISSOURI AGRICULTURAL EXPERIMENT STATION purchase and storage at the season of lowest prices. On the other hand, the seasonal movement in bran prices usually is sufficient to justify the purchase of a 6 to 8 months' supply in Augu.st orSep-tember. In fact, during the 18 years from 1924-1941, inclusive, Missouri producers who bought their September-April requirements as needed paid at least $1.75 per ton more for bran than those who bought their 8 months' requirements in August. In only three years . was the August price higher than the average for the succeeding 8 months. In 13 of the 18 years, price savings from the purchase of bran in August for fall and winter needs were apparently in excess of storage costs, and in 6 years were several times storage costs. 'l'he seasonal variation in bran prices is grea~er than that for most feeds but prices of many feeds do fluctuate from seasonal influences suffi-ciently to warrant purchase and storage in the period of seasonally low prices. Table 1 gives the seasonal highs and lows for feed prices in St. Louis market. TABLE I.-SEASONAL CHANGES IN WHOLESALE FEED PRICES AT ST. LOUIS, BASED ON 1924-1940 A VERAGES* Seasonal Low Seasonal Peak Feedstuff ]donth Index" ]donth Index" Corn _____________________ November 94.1 July 109.8 Wheat ___________________ August 94.1 January 105.1 Oats _____________________ August 91.6 January 105.8 Bran _____________________ September 91.6 April 110.6 Cottonseed ]deal ___________ October 96.3 August 105.6 Soybean ]deal _____________ October 94.9 August 103.8 Linseed ]deal ______________ July 96.2 January 104.6 Tankage __________________ June 94.8 January 104.2 ]deat Scraps ______________ June 96.0 December 103.5 'Seasonal Variation and Economy of Basic Feeds. 1924-1940, ]do. Agr. Exp. Sta. Bul. 422. "Shows the percentage which prices in specified months are of annual averages. The normal seasonal trends in St. Louis wholesale prices of three grains and eight by-product feeds are shown in Figures 1 to 4, in-clusi've. In these charts, the trends are expressed in terms of "In-dexes of seasonal variation". An indeX: of seasonal variation for any month is simply the relation of prices in that month to the average for the year. For example, the seasonal index for bran prices in September. is 91.6, which means that normally bran prices in Sep-tember are 91.6 per cent of the average price for the whole year, or in other words, September prices average 8.4 per cent below the yearly average. In April, the index of seasonal variation for bran is 110.6, which means that bran prices in April are normally 10.6 per cent above the annual average. Thus, the normal seasonal change , in prices of bran from September to April is from 8 per cent below to 10 per cent above the annual average. Although ~easonal changes in prices have been worked out on the basis of average farm prices or nearby wholesale market prices,these CIRCULAR 230 3 may not be satisfactory for use in some communities because of peculiarities in local prices. In some areas, grain prices are below nearby wholesale market prices at harvest time and above central market prices at 'other seasons, which makes for rather sharp seasonal changes in local -prices. This seems to be true for -corn prices in Southeast Missouri. In such areas, purchase and storage of grain usually is a highly desirable practice. County agricultural extension agents and teachers of vocational agriculture are usually aware of such conditions and should be consulted about local price movements. INDEX ..... OATS ~""'-- ~-------""-..------ -----WH~-105 100 95 90 Fig. I .-Indexes of seasonal variati~n in St. Louis wholesale prices of eorn, oats, and wheat. Another influence affecting seasonal changes in prices in the direc-tion in which the general price level is moving. When the general price level is advancing, the advantage of buying and storing in the period of seasonally low prices is enhanced greatly. This has been apparent to those who have watched feed prices closely since early 1939. On the other hand, the effects of conditions causing a falling general price level may be great enough to offset the effect of normal seasonal movements. For example, a gradual decline of 15 to 20 per cent in the general price level from August to April will wipe out completely the normal seasonal increase in bran prices. It is extreme-ly important, therefore, that a farmer before deciding upon a feed buying program, be informed not only as to normal seasonal price movements for his locality but also on the general outlook situation, which will indicate the trend in general price level expected during the . year ahead. The College of Agriculture prepares Qutlook material which may be obtained-through county agricultural extension agents. 4 MISSOURI AGlUCULTURAL EXPERIMENT STATION The second phase or the problem of economical feeding is that of determining which feeds to buy uuder cunellt price conditions in order to obtain needed nutrients at the lmvest cost. Since each feed-stuff contains both protein and carbohydrates and since a pound of protein usually is scYel'al times more yalnable than a pound of carbo-hydrates, this problem is not a simple one. One method of comparing' the relatiye costs of feedstuffs as sources of digestible protein and non-protein nutrients has been 'worked out by Dr. '.V. E. Peterson of the University of Minnesota and reported in the Journal of Dairy Science., (Volume 15, 1932, pp. 293-297). This method uses pl'iees of two feeds, the protein supplement which normally is the cheapest source of dig'estible protein and the grain which 118na11y is the cheap-est source of non-protein digestible nutrients, as bases for determin-ing' the cost pel' pound of protein and nOll-protein llutrients in these feeds. 'rhis is an alg'ebraic process because corn, which normally is the ch'eape"t "ouree of carbohydrates, also contains SOllle protein. Also cottoIlseed meal aud soybean meal, usually cheapest sources of protein, contain nOll-protein nutrients of considerable value. Once the costs of protein a.nd non-prot.ein nutrients have been determined from the two basie feeds, the monetary yalue of the digestible protein and non-protein nutrient in any other feedstuff can be quickl:v' calculated . INDEX 115 110 105 100 95 90 85 .JAN. MAR . MAY JULY SEPT. NOV. JAN. Fig. 2.- Indcxes of seasonal variation in St. Louis wholesale prices of bran. shorts, and gluten feed. Finally, the process can be carried a step farther by comparing the total monetary feeding value of the nutrients in the feed with its price. Such comparisons between feeding value and prices were CIRCULAR 230 5 worked out for certain basic grains, by-product feeds and hays for each month from 1924 to 1940 and reported in Missouri AgTicultural Experiment Station Bulletin 422. The percentages which actual prices were of feeding values were termed" indexes of economy" in this publicatio~l. Corn and cottonseed meal were the basic feeds used to determine the cost of digestible protein and non-protein nutrients. INDEX II gO 85 JAN. MAR. MAY JULY SEPT. NOV. JAN. Fig. 3.-Inrlexes of seasonnl variation in St. Louis whole'Hale prices of linset~d meal, cotton-Reed meal, and soybean mea1. A brief example of the calculation of the index of econom~T for soy-bean meal on February 10, 1942, may help to point out the signifieanee of these indexes. "With No.3 yellow corn selling at 83 cents a bushel and cottonseed meal at $42.50 a ton, as was the ease in the St. Louis market on ]'ebl'uary 10, digestible protein was costing 4.35 eeuts per pound and non-protein digestible nutrients, mainly carbohydrates, were costing 1.64 cents per pound when obtained from these two feeds. A ton of soybean meal normally contains 696 pounds of di-gestible protein and 914 pounds of non-protein digestible llutrients,. hence the "feeding value" of these . nutrients was $45.24. Ou the same date, soybean meal was selling at $47.00 per ton. Thus, the index of economy for soybean meal on February 10 was 104 which was the percentage which its price, $47.00, was of its "feeding Value", $45.24. In other words, the nutrients in soybean meal were 4 per cent more expensive on February 10 than the mixture of corn and cottonseed meal which would have provIded the same quantity of each class of nutrients. The Missouri investigation (1924-1940) was a historical study of 6 MISSOURI AGRICULTURAL EXPERIMENT STATION the economy of feeds since it 'showed what the relative economy of each feedstuff as a source of nutrients had been during the preceding 17 years. Although the current situation is greatly different from that of the period studied, several important facts were disclosed; One of the most important is the variation in the economy of feeds as sources of nutrients. Past price relationsnips have often become so imbedded in feeding plans that some producers fail to consider feeds other than the ones traditionally fed. Corn is so consistently the cheapest source of non-protein nutrients that wheat and oats may not receive proper consideration; yet, on the basis of St. Louis wholesale prices, wheat was a cheaper source of carbohydrates than corn in 27 of the 192 months covered by this study and oats were cheaper in 55 months. Bran, shorts and gluten feed were also relative-ly cheap and, though higher in protein, would have been economical substitutes for a limited amount of the feed grains in the ration dur-ing more than three-fourths of the months of the study. INDEX 115 110 eo JAN. MAR. MAY ----,;---------.J:"I"---JULY SEPT. NOV. JAN. Fig. 4.-Indexes of. seasonal variation in St. Louis wholesale prices of tankage and meat scraps. . On the protein side of the ration, soybean meal at St. Louis whole-sale prices in late years has been a consistently cheaper source of digestible protein than cottonseed meal. This fact is well known, but the fact that linseed meal, tankage and meat scraps have been, for limited periods, cheaper sources of digestible protein than cottonseed meal, is not common knowledge. Furthermore, high quality alfalfa hay was in most years, a very economical source of protein. CIRCULAR 230 7 These historical facts for the St. Louis market can not serve as a basis for determining feed buying programs in any locality at present, but they point out emphatically the need for current knowledge· of feed prices and values. Consequently, "indexes of economy" of feed-.... . stuffs based on St. Louis wholesale prices are published currently in "The F.arm Outlook'*'''. Table 2, which will illustrate the use of the indexes, is adapted from a recent issue. With prices as they were in St. Louis on February 10, 1942, none of the other low protein feeds TABLE 2.-PRICES AND INDEXES OF ECONOMY OF CERTAIN FEEDS (BASED ON ST. Lo.UIS PRICES) Wholesale Prices Indexes of Economy Feedstuff and Unit February 10, February 10. February 10, February 10, 1941 1942 1941 1942 Low Protein Feeds Corn, No. S Yellow. bu. --------$ .63 $ .88 100 100 Wheat. No. 2 Red, bu. ---------.935 1.31 122 180 Oats, No. 1 Mixed. bu. ---------.405 .57 117 125 Bran, Standard. ton -----------22.62 82.62 99 108 Shorts. gray, ton -------------23.12 38.88 91 102 Hisrh Protein Feeds Cottonseed meal, 41'%. ton ------82.50 42.50 100 100 Soybean meal, 41%. ton --------29.50 47.00 85 104 Linseed meal, 37'%. ton -------- 83.80 48.00 105 113 Tankage. 60%. ton ------------47.50 80.00 . 110 142 Meat Scraps, 50%. ton ---------42.50 75.00 114 154 was cheaper than co.rn as so.urces of nutrients, chiefly carbohydrates. Prices o.f all other lo.W protein feeds, as sho.wn by the indexes, were 2 to. 30 per cent higher than the value o.f the digestible pro.tein and no.n-protein nutrients they contained, as measured by the co.rn-co.tto.n-seed meal standard. Likewise, co.tto.nseed meal was the cheapest pro.-tein supplement on the St. Douis :r;narket because prices o.f o.ther high protein feeds were fro.m 4 to 54 per cent greater than the value of nutrients they contained. On the basis of St. Louis prices on Feb-ruary 10, 1942, the cheapest rations would have contained as much corn, bran, shorts, cotto.nseed meal and soybean meal as possible with-o.ut seriously affecting the efficiency of the ration. Conversely, exces-sive use of wheat, oats, tankage and meat scraps Wo.uld have made· the ration expensive. A year earlier, the situatio.n would have been different. At St. Louis prices on February 10, 1941, sho.rts and soybean meal would have been used as extensively as possible in the rations because they were unusually cheap so.urces of nutrients. Co.rn and bran also. were relatively econo.mical sources of carbo.hydrates at that time. Although the indexes based on St. Louis prices may serve a general purpose, indexes calculated from local prices would be more satisfac-to.ry. Such. local indexes should be based on the feed which. usually is the cheapest so.urce of digestible pro.tein and the feed which normally is the cheapest source of digestible non-protein nutrients. ln south • A monthly publication prepared by the Agricultural Extension Service to provide current and timely information on the price outlook for farm products and supplies. If interested. see or write your county agricultural extension agent. 8 MISSOURI AGRICULTURAL EXPERIMENT STATION Missouri, these may be cottonseed meal and corn as used in the Missouri publication but soybean meal and corn probably will be the most common combination in most localities north of the Missouri river. In areas where the volume of feeds bought is large, farmers should request their county agricultural extension ageuts and teachers of vocational agriculture to keep informed as to local feed prices and construct local indexes of economy as outlined in Missouri Bulletin 422. After local "indexes of economy'" has been determined, there still remains the problem of determining how individual feeding pro-grams can be modified to take advantage of the changes in the rela-tive economy of different feedstuffs. Some feeds provide essential vitamins and minerals which substitute feeds lack. Some feeds have harmful effects on animals. The quality of proteins varies from feed to feed. Animal proteins may be utilized more efficiently then vege-table proteins. For example, the "index of economy" for tankage was 154 (with corn and cottonseed meal as 100) and that for soybean meal was only 104 on February 10, 1942, which meant that tankage was 50 per cent more expensive than soybean meal. Under such conditions, farmers in each community must decide how far they may go in substituting soybean meal for tankage in the hog ration without materially reducing the effectiveness of the ration. Again, the county agricultural extension agents and the teachers of vocational agricul-ture, because of their knowledge of feeding principles, should take the lead in helping farmers change their feeding programs in line with changed feed-price conditions. In preparing this circular, the writer has tried to point out some of the practical applications of information about seasonal price ·movements and economy of feeds. The objective has been to point out facts that farmers and educational agencies serving farmers must constantly keep in mind when working out feed buying programs. These facts are: 1. Feed prices change materially from season to season and the amount of the seasonal movement is modified by the trend in the general price level, local conditions and other influences. 2. Relationships between prices of feeds change. This makes it necessary to keep currently informed as to changes in the rela-tive cost of nutrients in each feed. 3. Knowledge of the relative economy of feeds must be supple-mented with a basic knowledge of nutrition so that any changes made in feeding programs resulting from feed price changes will not seriously disrupt the adequacy of the ration from the standpoint of minerals, vitamin content, quality of proteins, and other necessary considerations. 

Using feed price information to reduce production costs

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