Feed formulation for profitability: Maybe it’s least about least cost

In any larger feed mill, you can find a feed formulation program. This is a piece of computer software that resembles a virtual matrix holding the nutrient composition of a desired feed recipe against the nutrient compositions and prices of various optional raw materials.

In a multiple linear function, the computer calculates millions of combinations simultaneously and spits out the cheapest formula that meets the set criteria. This is something humans alone, even theoretically, even with endless time, could not do.

When I studied animal nutrition, my class had to walk over to the information technology department at the university and run the calculations on a computer that was not a computer but a room full of buzzing machines with another room for the loud cooling system.

Now, I have two competing versions for multiple clients and pricelists on a medium-range laptop.

What remains unchanged is the attitude. The name of the software program somehow refl ects the unwritten subtitle of our feed business: “least-cost formulation.”

In a highly competitive business environment, controlling costs splits winners from losers. I will not join the panic about low prices seemingly compromising quality because in a high competition environment, quality also splits winners from losers. In the commercial feed business, where competing mills have to meet specifications set by their customers, least-cost formulation makes sense.

However, in the holistic view of animal production, the least-cost feeding strategy sometimes misses the bigger picture. The cost of feed is just one of many factors that determine profitability. A x B x C / D x E x F = profit.  Whether reducing A increases profit depends on the behavior of B, C, D, E and F.

In a situation where single components show considerable changes in price — as we currently experience with grains — it can make sense to reduce the intensity of production a little bit by decreasing the nutrient density of the diet. The effect of opening up the restrictions of the formulation to more fi ber, for example, of course leads to less feed effi ciency, which again might lead to less animal performance (weight gain).

Still, the monetary losses in performance could be justifi ed by lower feed costs. In return, when good carcass quality (as another example) achieves a premium and my fixed capital costs are high, I might be more immune to rising commodity prices and will allow the formulation program to pull in expensive components to gain feed efficiency.

These are the very basic economics of investment and return. It appears easy, but it is based on very detailed information and the will to commonly share results. In the feed industry, that’s a problem. Even in fully integrated organizations that control the whole process from purchasing grains to packing meat, the costs of feed get too much attention. There is an obvious clash of interests.

The feed division must not only provide cheap feeds to the animal production group but also prove that it can be a wealthy profi t center. In commercial sales, it’s even worse. The information and response loop is distorted by the questionable truth of animal performance data delivered by customers. Competition does not make life easier, either. Can you really compare feeds from different companies? Can you compare results on different farms? A calculation is only as good as the data fed into it.

An excerpt from Feedstuffs 19. Nov. 2007: Feedstuffs