Planning at least 1-2 seasons ahead critical for good feed buying

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Length: 1204 words; 4-5 minutes

Feed market volatility graph

Volatility within the feed markets has risen dramatically during the past decade, with price movements now routinely exaggerated by the buying and selling of commodity contracts by investment funds looking to make a quick profit. On top of that, there’s steadily growing worldwide demand competing for a supply that’s increasingly affected by changes in global weather patterns and politics.

The graph in figure 1 clearly shows how the situation has changed, with pre-2006 wheat prices affected by supply shortages such as drought, but volatility low. And while the impact of any price swing can be positive or negative for UK dairy farmers, the extent of the volatility and rapid rate of change have dramatically increased the risks associated with feed buying.

Wheat futures price graph
Figure 1 – Chicago wheat prices (in US dollars) since 1999 (Source: Reuters)

Reducing price risk

“Feed is the biggest variable costs on most dairy units, and the potential for prices to quickly rebound by as much as £30-40/t or more has huge implications for overall profitability,” states KW nutritionist Dr Matt Witt. “For a 200-cow herd expecting to feed at least 200t of bought-in feed through the winter, that sort of movement has the potential to add £6‑8,000 to feed costs.

“What’s needed is a feed buying strategy aimed at reducing this risk, and it generally requires planning much further ahead than many realise.”

While the most forward-thinking farms are routinely planning 18 months or more in advance, a good starting point is to always be thinking at least a season or season and a half ahead, advises Dr Witt.  

“The key is to know what you’re likely to need well in advance…”

“The key is to know what you’re likely to need well in advance, then work closely with a supplier who can track the markets, understand the factors affecting prices and give good, honest advice on when to buy.

“So in addition to finalising ration plans for this winter based on what’s currently in the clamp and expected cow performance, you also need to be working out rough estimates for next year’s grazing season and maybe even next winter.”

Previous turnout dates, grazing areas and grass growth will provide a starting point for calculations, combined with expected post-winter silage stocks and any changes to cow numbers and yields. The area set aside for silaging will give an indication of volumes for next winter, and compared to current figures to indicate how much feed requirements might change.

“Then update the figures every few months as actual silage use or grass growth becomes known,” Dr Witt adds. “Be proactive, work out what’s needed and when, then set about securing those feeds as the price comes right.”

Monitoring market trends

And this doesn’t automatically mean buying everything in advance on forward contract. Not only is it important to leave room to adjust final feed volumes when rations are finalised, but sometimes the price trend is downwards, and holding off is the right thing to do.

“There’s no doubt that it’s getting increasingly hard to always buy feeds ‘right’, with each type of feed and even individual products affected differently by the factors affecting prices,” highlights KW senior trader Chris Davidson. “For example, covering soyabean meal forward through the first part of this summer wasn’t the right thing to do, but covering wheat was, whilst rapemeal meal has very much been a spot buy for a long time now.”

The graph in figure 2 shows that there have been regular points during the past five years when taking forward cover on soyabean meal for maybe 2-6 months was the best move, but the overall trend has largely been downwards. What is just as important, however, is how low recent prices have been compared to historic highs.

Soyabean meal futures price graph
Figure 2– Chicago soyabean meal prices (in US dollars) since 2013 (Source: Reuters)

“It’s easy to see that if poor weather, short supply and high demand were to line up at some point, soyabean meal prices really could jump £100-150/t,” Mr Davidson continues. “Weighed against a potential downside limited to perhaps £10-30/t, that’s a considerable risk.

“Constant monitoring of the markets is therefore essential. But it’s also time-consuming, and so many customers are now placing feed buying in our hands – we keep them updated on market trends and feeds contracted, but are able to react quickly to secure feeds when the price is right.”

Feed buying options

The options available for managing that feed buying are also no longer limited to just forward contracts on bulk commodity feeds. It’s now possible to buy a blend in advance if prices are low, for example, then effectively exchange it for an alternative if specification requirements change, whilst still maintaining the original savings.

“More sophisticated still is the option to forward buy…blend ingredients…”

More sophisticated still is the option to forward buy individual blend ingredients, building up a portfolio of feeds over time which will form the core of the final blend needed. It’s a relatively recent development, but one that’s generating a lot of interest.

“There’s already a strong trend for those feeding total mixed rations (TMR) to buy all the concentrates as a single custom blend – it eases the pressure on storage and cashflow, plus reduces the errors in mixing,” Mr Davidson highlights. “Being able to flexibly secure the main blend ingredients as the price comes right makes it even more attractive.

“The key is to consider each basket of feeds – such as proteins, fibres, starches – as a unit. This makes it much easier lock in portions of what’s required to spread risk and secure potential cost savings without having to split cover for every single feed.”

On-farm experience

Philip Cooke image
For KW customer Philip Cooke, forward plans are a key part of feed buying.

For Philip and Andrew Cooke at Sutton Barton Farm, near Honiton, extended forward plans have formed a routine part of feed purchasing for a number of years now. A long-time KW customer, key changes to management, nutrition and feed buying 4-5 years ago saw yield increases of around 4,000 litres/cow go hand-in-hand with reduced feed costs.

Annual milk sales per cow currently stand at 11,800 litres, using a feeding system focused squarely on simplicity and good feed buying. And of the 560 Holstein Friesians in the herd, the 501 in milk are averaging 38.8 litres/cow/day and achieving an income over feed costs (IOFC) for the month of July of £7.11/cow.

“Keeping things simple and easy to manage is extremely important to us, so apart from some rapemeal, sodawheat and the dry cow blend, we have all the straights delivered as a single KW custom blend,” Philip Cooke explains.

Feed buying involves close contact with KW’s Al Harris, who keeps the Cookes regularly updated regarding market trends and any factors that could potentially affect prices and availability going forward. The custom blend is produced to a fixed specification (13.2MJ ME/kg DM, 22.6% crude protein, 18% starch), allowing some flexibility in composition depending on market fluctuations and which feeds represent the best value.

“We try to keep the blend as consistent as possible to avoid upsetting yields,” Mr Cooke continues. “It’s another advantage of planning well ahead. As well as monitoring prices and being able to secure the feeds we want, we also know in advance if the mix is going to change and can introduce those changes gradually.

“I keep in contact with Al Harris to make sure we can lock in chunks of what we need at good points in the market, and so we can achieve the balance between price, risk and securing supply that we’re looking for.”

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