National Farm Business Management Conference Overland Park, Kansas, June 9 - 13, 2013

1. _______________________________________________ Comparing Feed Costs of Wisconsin Dairy Systems From 1995 to 2010Thomas S. KrieglUniversity of Wisconsin Center for Dairy ProfitabilityUniversity of Wisconsin-ExtensionMadison, WisconsinSee http://cdp.wisc.edu for more information National Farm Business Management Conference Overland Park, Kansas, June 9 - 13, 2013

2. Perception That _______________________________________________ • Input costs rose slowly and steadily through 2006. • Big jump to a new plateau starting in 2007. • That graziers feed costs are substantially lower than those for confinement herds. • Belief that the “grazing advantage” increased with the 2006-2007 grain price jolt.

3. To Test these Perceptions _______________________________________________ • Actual farm financial data in Wisconsin Agricultural Financial Advisor (AgFA) used to test perceptions. • Data from Confinement and Grazing herds from 1995 to 2010. • Data from Organic farms from 1999 to 2010. • Data presented on a CWT sold basis • Lakeshore and Fox Valley Farm Management Associations and Wisconsin Farm and Business Management Inc. are major contributors to the AgFA database.

4. Annual Farm Size and Number Range _______________________________________________

5. To Estimate (all but Opportunity) Feed Costs _______________________________________________ Step 1: Purchased Feed Costs Step 2: Add “direct feed raising costs” –cost categories that are at least primarily cropping or feed raising costs. • Chemicals • Custom Machine work • Fertilizer and Lime • Gas, Fuel and Oil • Seeds and plants • The other “crop expense” category

6. To Estimate (all but Opportunity) Feed Costs _______________________________________________ Step 3: Add “indirect feed raising costs” which are half of the expenses that are at least partially cropping or feed raising expenses. These include: • Interest • Non-livestock depreciation • Paid Non-Dependent Labor Compensation • Rent • Repairs

7. To Estimate (all but Opportunity) Feed Costs _______________________________________________ Purchased Feed Costs Plus Direct feed raising costs Plus Indirect feed raising costs Combined, the above costs are called estimated (all but opportunity) feed Costs.

8. Observations about Purchased Feed Costs _______________________________________________ • Cost of purchased feed increased for all groups during the 12 year period. • WI confinement and organic herds grow a high % of their feed, • WI grazers tend to buy most of their grain. • Purchased feed costs per cwt sold numbers beginning in 2007 were higher than any previous year for grazers and confinement. • Possible new and high plateau for purchased feed costs in 2007.

9. Observations about Direct Feed Raising Cost _______________________________________________ Greatly influenced by the % of home grown feed. Appeared to reach new plateaus in 2004 and again in 2007 for grazers and confinement. Organic began sharp uptick in 2002 and down in 2008.

10. Observations about Indirect Feed Raising Cost _______________________________________________ • Less annual variability in these “fixed” costs category. • A definite upward trend began for Organic in 2002. • Organic always highest.

11. Observations about Estimated (All but Opportunity) Feed Costs _______________________________________________ • Increasing for all groups somewhat similarly. • Organic was always highest. • Grazing herds were usually the lowest (not always by much). • Appeared to reach new plateau in 2007.

12. Impact on Profitability _______________________________________________ • Organic had 12 year average advantage of $1.03 NFIFO per cwt/sold over grazers and $3.21 over confinement. • NFIFO changed somewhat similarly for all • Feed costs are important but, don’t totally determine profit levels. 2008 was highest estimated feed costs/CWT sold and highest NFIFO/CWT sold for two groups. Organic differed only by a $0.07 higher NFIFO in 2007 than 2008.

13. Summary _______________________________________________ • Feed costs/CWT sold increased dramatically in 2007 for all. • Changes don’t appear to give a new advantage to any group. • Appears like new feed cost plateau beginning in 2007. • Graziers feed cost/CWT sold slightly but not substantially lower than confinement. • Organic feed cost/CWT sold consistently higher. • All of the Organic 12-year advantage in NFIFO came from income side of equation. • 66 % of the Grazier 12-year advantage over Confinement in NFIFO came from cost side of equation. • Expect 2012 data to show high feed costs.