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Purchased feed model challenge met head-on
Escalation in feed costs since 2007 made the all-purchased-feeds model less efficient to manage

Staying profitable necessitated a progressive way of working with forage growers to control the quality of harvest as a priority over quantity, and to take on that quantity risk for the growers. The gamble is worth it, Morgan and Gilbert say, because forage quality is so critical to their profitability in terms of milk shipped per cow, herd health, and the bottom line as reflected in the cost of purchasing protein and energy feed supplements.
Photo by Dieter Krieg

By SHERRY BUNTING
Special for Farmshine

STATE COLLEGE, Pa. -- When Bill Morgan and Jon Gilbert shared their insights and experiences in building and expanding their two New York State dairies -- Scipio Springs Dairy, near Auburn and Windsong Dairy near Watertown -- Pennsylvania Dairy Summit attendees were keen to learn more about how they weathered the 2008 to 2013 time period under the purchase-feed model.

The escalation in feed costs that was occurring by 2007 made the all-purchased-feeds model less efficient to manage, according to Morgan and Gilbert. By 2009, they had partnered with their main corn silage grower to form a land company and buy ground near Scipio Springs. And they had Windsong Dairy at the second location, milking 600 cows on more ground than was needed to feed it.

“(The purchase-feed model) all worked well until ethanol,” Morgan stated. “To buy silage, we had to compete with grain prices.”

Today, Scipio Springs is home to an 800-cow milking herd on 600 acres of farmed land, leaving much of the forage needed for the cows coming from purchasing relationships with growers. Windsong is 600 cows on 1400 acres of farmed land.

Morgan and Gilbert have a progressive way of working with forage growers to control the quality of harvest as a priority over quantity, and to take on that quantity risk for the growers. The gamble is worth it, the dairymen say, because forage quality is so critical to their profitability in terms of milk shipped per cow, herd health, and the bottom line as reflected in the cost of purchasing protein and energy feed supplements.

At Scipio Springs 30,700 pounds of milk were shipped per cow in 2013; and the newer Windsong Dairy’s 2013 total came in at 28,920 pounds of milk shipped per cow. Both dairies utilize custom harvesters and custom heifer growers.

To prioritize quality over yield in all steps of forage production from contracted growers, Morgan explained that forage crops -- primarily corn silage -- are purchased by the acre and not by the ton. This puts the yield risk for forage quality decisions onto the dairy and removes that concern on the part of the crop grower.

“We work with growers to control the harvest and with it the quality of the forage,” said Gilbert. “Because we purchase forage by the acre, we can control seed decisions to use BMR varieties. The yield risk is on us.”

He explained that controlling the harvest as well as the planting decisions is tough under more typical buying arrangement because those arrangements “generally involve buying crops the grower harvests for you. So, the focus in those arrangements is to bring in more tons versus quality because they are paid by the ton,” Gilbert said. “Purchasing our crops by the acre is a decision to take on the yield risk in order to control the forage quality.”

In this arrangement, Scipio Springs takes on the contract with the custom harvester to harvest the acres of feed they have purchased from the grower. They are separate contracts. They also provide the seed for planting.

As part of the corn silage contract, Scipio Springs Dairy applies the manure for those acres and receives full fertilizer value for those manure applications as part of the per-acre crop purchase contract.

They use drag-line to reduce compaction and to reduce neighbor complaints.

“We are entering our fourth 4-year contract with our main corn silage grower,” said Morgan. “That is a 13-year relationship.”

Morgan and Gilbert purchase haylage and alfalfa hay crops standing in the field in order to control the harvest timing and to manage the harvesting process for top quality.

“That is risky for us in a dry year,” said Morgan. “But the long term average is what we look at, not the yearly cost.”