FORAGE SUPPLIES AND TMR CENTERS

Partnerships between Crop Operations and Dairy Producers

Dan Hein and Tom Braun

As the dairy industry continues to change in the Upper Midwest, one (1) constant will always remain; High quality, consistent forage source is required for profitable milk production. (Table 1) One of the potential changes in this competitive market is the source of that high quality forage. Since the late 1960’s, the Upper Midwest Dairyman has relied more and more on their own resources (land, equipment and labor) for forage supplies for their dairy herds. Neighborhood partnerships with equipment became less common as profitability increased on the farm. Multiple enterprises were commonplace in this dairy environment.

The mid to late 1990’s are changing this common farm scenario. With specialization becoming more desired and worn out equipment and labor becoming more commonplace, other avenues of forage supply have been explored as a means of feeding dairy herds. In addition, the high start-up cost of a new business has caused business people to minimize investments and look for non-traditional arrangements with suppliers for forage sources. Entrepreneurs wanting to get into the dairy business have been purchasing TMR mixes from their neighbors for much of the 90’s. The Forage Supply Center/TMR Center is an example of that specialization. How this business opportunity can grow and provide stability for the supplier and the customer is the purpose of this discussion.

Definitions

Forage Supply Center – Supplier of forages for a customer on a long-term basis.

TMR Center – Supplier of complete TMR mixes including (varies depending on the business contract), forages, grain and supplement either similar to the herd diet on the supply farm or specific to the requirements of the customer.

Business Planning:

Both the potential customer and potential supply farm need to have a business plan. From these plans will come information including; Complete TMR or Forage only, Annual Product Quantities, Product Quality and Pricing Expectations, and Manure Disposal. Both parties need to communicate to each other the expectations and goals of their individual businesses. Through the business plan both parties will inform their financial partners of the arrangements and the potential benefit reached from this business venture.

A Marketing Plan by the supplier would be a good business tool to provide continual communication between themselves and their customers. It will also provide communication between other consultants who may provide information to the customers.

Supplier Benefits: Either Complete TMR or Forage Supply

1) Added market value crop. Increase income per acre potential.

Corn Silage @ $25/Ton = $500/acre income @ 20 Tons/acre.

Corn Grain @ $2.30/bu = $322/acre income @ 140 Bu/acre.

2) Utilization of forage harvesting equipment over additional acres.

3) Harvest as High Moisture Feedstuff vs. Dry Feed.

Haylage versus Dry Hay.

HMC versus Dry Shell Corn.

Advantage:

i. Higher nutrient yield per acre.

ii. Lower field loss.

iii. Wider harvest window with haylage.

iv. Efficient use of labor.

Disadvantage:

1) Greater storage loss.

2) Fermentation variability.

3) Quality control at feedout.

4) Increase storage and handling cost.

5) Initial investment cost. (Feed Storage Cost.)

6) Additional transportation cost.

7) Additional skilled labor required for equipment operation.

4) Utilize TMR equipment and labor more efficiently.

Buyer Benefits Either Complete TMR or Forage Only

1) High Quality, Consistent forage source 365 days of the year.

2) No Storage Loss. Forage loss =3% of DM. X $100/DM ton is $.037/cow/day.

3) Crop Management Concerns.

· Land ownership cost and taxes or land rental cost.

· Machinery ownership costs, repairs, fuel, and labor to till, plant and harvest the crops.

· Eliminate operating cost for seed, fertilizer, herbicide and insecticide cost.

· Timely harvest schedule.

4) Reduce operating cost for feed inventory.

5) Eliminate the need for feed storage, TMR mixer, feeder labor and repairs.

Forage Quality Establishment

What should a customer use for references to insure that the supply farm can meet the needs of the users business plan? Historic forage samples if available would be a good reference starting point. Examples follow.

Haylage

Date DM% CP% ADF% NDF% NFC% Calcium Phos. RFV

6/27/96 39.3 18.3 32.6 43 27.8 1.31 .30 137.5

8/15/96 36.2 23.2 32.9 43.3 22.6 1.34 .32 135.8

12/05/96 44.6 17.1 34.3 45 27 1.49 .28 128.4

6/23/97 40.0 23.2 36.3 47.5 18.5 1.38 .31 118.8

8/12/97 33.7 20.3 35.4 46.4 22.5 1.43 .34 123

9/25/97 39.7 19.8 32.0 42.3 27.1 1.52 .29 140.8

2/20/98 45.1 22.1 30.9 38.8 1.77 .27 155.3

5/21/98 31.2 23.4 36.6 45.5 20.3 1.86 .40 123.6

6/25/98 32.6 22.2 31.8 39.9 27.0 1.69 .33 149.6

10/13/98 38.1 22.1 30.0 41.2 25.9 1.51 .32 143.0

12/3/98 36.3 19.4 36.5 46.4 23.3 1.17 .26 119.9

1/22/99 29.1 20.1 39.4 48.7 20.3 1.51 .30 111.2

1/22/99 29.2 22.1 33.7 42.1 24.9 1.50 .28 138.5

2/19/99 27.9 21.7 37.0 36.8 30.7 1.73 .29 167.6

Average 35.9 21.1 34.2 43.3 24.4 1.51 .30 135.2

Corn Silage

Date DM% CP% ADF% NDF% NFC% Calcium Phos.

9/19/97 42.6 6.9 20.4 35.3 52.2 .20 .24

9/23/97 40.0 6.5 22.0 42.0 45.9 .23 .20

10/15/97 27.7 7.5 26.5 51.3 35.6 .25 .26

11/7/97 28.2 7.4 20.0 40.5 46.5

1/13/98 27.8 6.8 25.1 42.3 .32 .22

3/19/98 28.9 8.3 27.6 45.7 .28 .21

6/25/98 35.0 10.0 33.4 .62 .19

10/13/98 38.1 7.3 20.4 36.1 51.0 .24 .24

1/22/99 43.5 6.3 28.0 34.0 54.1 .19 .24

Average 34.6 7.4 24.8 40.9 47.5 .24 .22

The historic information will give the buyer a view of what qualities of forages have been produced by the supplier. Additional investigation by the potential partners will be needed if the dairy desires other varieties of forages and how they may impact the profitability of the cropping operation. An example of this is BMr Corn Silage. Other management concerns for the cropping enterprise will be isolation and identification in the storage structure.

Pricing - Market versus Historic

Pricing the forages and other feedstuffs has always been one of the biggest challenges for ongoing business relationship between the supply farm and the final user. There are many ways to establish these values. What has to be accomplished is that both parties understand and agree on the final calculations used and how adjustments are made to the formulas to adjust for market changes.

Market Value Calculations:

HMC ($/ton) =SC*(%DM/84.5)*(2000/56)

If local dry corn is valued at $2.00/bu and the HMC is at 73.5% DM, then the value of the HMC is $62.10/Ton.

Corn Silage ($/Ton) = (SC*8+3)*(%DM/30)

If local dry corn is valued at $2.00/bu and the Corn Silage is at 35% DM, then the value of the Corn Silage is $22.17/Ton.

Haylage ($/Ton) = %DM/100*(SC*10.58 + SBM*.212 = 75(RFV – 100) = (CP – 14))

If local dry corn is valued at $2.00/bu and SBM is valued at $225/ton with the above average for the haylages then that Haylage is valued at $28/Ton.

Historic Value Calculations: (Best used for long term agreements)

The need here is to establish a 3-5 years history for the price of Shell Corn, 44 Soybean Oil Meal in your local market. Once these values are established, “Pricer or Feedval”, University of Wisconsin Excel spreadsheets can be used for the calculations for these forage values. The historic prices will give a flatter pricing value to the forages and will not move up and down with the price of grain, as with the market calculations. By using historic pricing, the dairy will have a more even cost to work with in the budgeting process for long range pricing. Historic pricing will also protect the crop operation from basement market prices, which will also help in the budgeting process.

Supply Methods and Measurement

Fresh feed is the main goal of the dairy herd and the supply farm. Economics will determine how fresh the feed is when it gets to the dairy. It may require daily delivery instead of every other day service. This will depend on the time of the year, daily temperature, and the forage management skills of the supply operation. The ideal system has the forage supply coming from the storage structure and incorporated into the TMR and fed immediately. Once the feed is “disturbed”, secondary fermentation is initiated which will affect feed quality. The inclusion of stabilizers will slow down the degradation of the forages, which may provide “fresh feed” for an additional 12-24 hours. Other considerations needed for successful partnership include:

1) Size of herd.

· Economics would suggest at least 75 milking cows. (Cow numbers can be less if the TMR mix is the same as used on a current dairy.)

· Cow numbers will also dictate the variations of TMR mixes delivered to the farm. Most with 150 cows or less will be 1 group TMR only.

· Dry Cow and specialty mixes will be difficult with these supply systems.

2) Deliver with Mixer or Delivery Truck will depend on travel distance.

3) 10-mile radius is base level pricing. (Suggest $20/load).

4) Greater distance may require a separate delivery wagon. This will increase the cost to the supplier and user.

5) Mixer operating charge of $6.00 per ton is minimum.

6) Distribution on the farm. (Dumped in one pile or delivered along Feed Bunk. (Will the delivery involve Bio-security Concerns?)

7) State certified scale on farm or close to supply farm.

8) Computerized TMR Recording System.

9) System will provide monitoring of mixes.

10) Can be used for billing purposes.

11) Standard Operating Procedures for:

· Quality Control

· Bunker Packing

· Inventory Management

· Bunker Feeding Management

-Bunker face management

-Quality and Moisture testing of the feeds.

· TMR Mixing

Business Arrangements and Contracting Issues:

1) Length of the agreement.

· Long Term vs. Short Term

· Out Clause for both parties

2) Annual pricing adjustments.

3) Market Adjustments established and understood.

4) Terms of payment.

5) Dairy Assignment.

6) Amount of each payment. Flat rate with regular adjustments to the balance or variable each month for amount due.

7) Delivery agreements.

8) Daily versus Every other day.

9) Time of day delivered with-in tolerable time frame.

10) Mechanical breakdown contingencies.

11) Manure agreements.

12) Supply farm agrees to take the manure from livestock operation.

13) Need to establish hauling times. Daily, Weekly, Annual.

14) Who pays for the hauling?

15) Who does the hauling?

16) Annual amounts needed to be incorporated into the 590 plan.

17) Land Rental agreements.

18) Insurance requirements. Liability and operating issues.

19) State licensing requirements.

Conclusions:

Win-Win partnerships have been developing over the last few years as the Agriculture Industry continues to change. These forage supply partnerships between dairy and crop operations can provide opportunities for both to gain efficiencies from size and enterprise concentration. Many variations of these supply systems are being tried today and will continue to evolve to what is successful for each partnership. Both parties require continual communication between each other. Discuss issues as they arise, not when it’s convenient.

The margins paid to the supply farm for the forages and/or the complete TMR may have been part of the profit margin for the dairy operation. This loss of income may need to be offset to maintain profitability. The time gained from the TMR supply system will provide an estimated 700 labor hours to utilize doing something else. Options for increased income include increasing milk per cow with better management or growing cow numbers.