Calculating the expected cost of feeding
The cost of feed and the amount of feed required will be difficult to predict and will depend on when feeding starts and when effective rainfall occurs to stimulate pasture growth. Rather than guess when the season will break, use long-term rainfall records to help calculate the expected cost for the most likely feeding scenario. The details below will help you assess the potential costs and benefits of feeding stock.
The information you need
- The probability of effective rainfall to stimulate pasture growth for your farm, for each month until winter.
- The average price of feed per tonne.
- The expected feed rate as kg/DSE/week.
Note that the amount of rain that constitutes ‘effective rainfall’ or a ‘break in the season’ for locations that experience these breaks will vary depending on time of year. For example, in Central Victoria, this would be:
- 100 mm in February plus 50 mm in March.
- 50 mm in March plus 40 mm in April.
- 50 mm in April plus 25 mm in May.
- 40 mm in May plus 25 mm in June.
Rely on long-term rainfall records rather than long-term forecasts. Forecasts are of little value in late summer and autumn in predicting when effective rains will arrive. Long-term rainfall records are available from weather record stations across Australia at: www.bom.gov.au/climate/data
An example calculation
- Fire burnt all pastures at the end of January.
- Feeding stock in containment pens with 80% grain and 20% hay or straw.
- Assume grain and hay average price $300/t.
- Feed rate 4.0 kg/DSE/week from February onwards, until winter if required.
- Probability of break in the season as above.
Table A1 shows the cumulative monthly feed cost (Column C) and the calculated expected feed cost (Column E) after considering the likelihood of a break in each month. The required feed rate is shown in Column A. Column B is calculated by multiplying the cost of feed per kg ($0.30) by the amount of feed per DSE per day (4 kg/7 days = 0.57 kg per day on average), multiplied by the number of days in the month: for February, 0.30 x (4/7) x 28 = $4.80. Using these prices, the monthly feed cost will build up to $5.31/ month for months with 31 days. Column C is calculated by adding the current month’s cost (Column B) to the previous cumulative feed cost. Column D shows the probability of a break based on long-term averages. Column E, the expected cost, is calculated by multiplying the cumulative feed cost (Column C) by (1 – current month probability of a break). If feeding young stock, an adjustment for additional protein should be considered.
To interpret the final result, consider both the expected feed cost for the month when the probability of effective rainfall is 95% or higher (this is the ‘average- case scenario’) and the cumulative feed cost by this same month (the ‘worst-case scenario’).
In this example, the expected feed cost was $12.74/DSE. On average, this is how much it will cost per head to feed animals through if you had the same scenario hundreds of times. But you will only have one scenario, which you cannot predict: this year. If the season doesn’t break until late autumn, the actual feeding cost will be far greater, approaching $25.71/DSE. Likewise, if the break arrives in March the feed cost will be less than $10.21/DSE.
This method can be used to calculate the expected feed cost for all regions to help you understand the possible feeding scenarios you may face. The cost of feeding will be high in most cases. However, the consequences of reducing stock numbers will have a significant impact on future income that may outweigh the short-term cost of feeding, if feeding is a practical option on your farm.
Consider from a cash flow perspective both the expected feed cost and the worst-case scenario. There is no point in keeping all stock if you only have the funds to feed until April. If the drought does not break and you are forced to sell stock at this time, the financial outcome can potentially be worse than selling stock early.
Once the expected cost of feeding is calculated, undertake partial budgets for each stock class to determine if feeding or selling is the right strategy. You will need to know the:
- current value of stock
- expected cost and worst-case cost of feeding
- extra income received by retaining stock
- expected death rates of stock while feeding
- extra costs of running retained stock (animal health, shearing etc.)
- value of the retained stock
- likely cost of buying back stock after the drought breaks.
Production and therefore income from retained stock is usually lower than usual, because nutrition may be lower than usual for at least part of the year, leading to reduced stock growth rates (and wool quality for relevant sheep breeds). However, if you feed well, you may see improved production compared to a severely dry season where you would have persisted with pasture, although costs to achieve this improved production will be higher than usual.
Calculate budgets for feeding under the expected cost scenario and worst-case scenario and compare to budgets for selling (and agistment if considered). Consider also potential effects if you do sell and re- buy, including genetic merit of purchased stock, future income potential, their age and impact on cash flow, and the cost associated with biosecurity risks, especially if you usually run a closed herd.