Reviewed October 1993
Contents
Use our feedback form for questions or comments about G3106.
Publication search
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 cow problems. In larger herds, cows can be grouped more homogeneously to better balance for nutrient requirements.
The purpose of this publication 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:
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:
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 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.
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 D3 indicates whether the change has a potential of producing a positive or negative annual profit. Line D4 converts the dollar profit into a percent return to the additional capital needed to make the change, i.e., 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 per hundredweight should be calculated. At least a best-case and worst-case 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).
Change considered: Switch to total mixed dairy ration from present feeding system described as ___________________________
Roller mill $___________
Mixer wagon with scales1 $___________
Front-end loader $___________
Other $___________
Commodity building $___________
Additional bunk space $___________
Lot fences for cow grouping $___________
Other $___________
Estimated increase in value of milk production:
Present average annual milk production per cow is _______ pounds(a)_____ number of cows x _______ (b) pounds increase per cow = _______ total pounds milk/100 = _______ hundredweight x $_______ (c) price for 3.6 percent milk = $_______
_____ number of cows x _______ (a) pounds present production per cow = _______ total pounds milk/100 = _______ hundredweight. x _______ cents per hundredweight. per 0.1 percent added butterfat = $_______
Feed cost guides based on milk production per cow:
12,500 pounds = $1,050; 15,000 pounds = $1,150
18,000 pounds = $1,250; 20,000 pounds = $1,300
_____ number of cows x $_______ feed per cow = total value fed x _____ percent wastage
= $_______
Increased milk production ___________ pounds per cow per ___________ milk per feed ratio2 (Guide 2 to 3 pounds) = __________ pounds grain ration x _________ cents per pound x ____________ number of cows = $__________
Guides for added labor for TMR system per cow by herd size: 100-cow herd -- 5.5
hours per cow; 200-cow herd -- 4.1 hours per cow; 300-cow herd -- 3.7 hours per cow;
500-cow herd -- 3.6 hours per cow
____________ hours per cow x ___________ number of cows x $__________ per hour. = $_______
Guides for tractor costs:
| Tractor hp | Costs per hour operation -- variable | Costs per hour operation -- total |
|---|---|---|
| 50 | $3.35 | $7.50 |
| 60 | $3.75 | $8.50 |
| 90 | $5.63 | $12.50 |
| 100 | $6.75 | $15 |
________ hours per cow (same as labor hours in item 2) x ______ number of cows x $______ per hour. (costs per hour based on tractor hp) = $__________
_______ pounds increased milk per cow x _______ number of cows = ______ total pounds milk per 100 = _________ hundredweight x 75 cents per hundredweight. = $___________
Equipment investment $_______ (Line A1) x 23 percent = $________ (a)
Buildings and facilities investment $________ (Line A2) x 14.2 percent = $______
(b)
Total fixed costs (Add lines a and b) = $__________ (c)
$________ cost per cow (Guide $6-$18 per cow) x _________ number of cows = $______
1Added 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.
2Milk per feed ratio is pounds of milk per pound of feed fed.
Profit (line 3) $_______ + $_______ average investment on new investment2/$_______ total new investment x 100 = return on initial investment _______ percent
1For the change to TMR to be profitable, the percent return should
be at least 7 to 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.
2Average 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).
G3106, reviewed October 1993