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Economics of Poultry Feeding: From least cost to maximum profit feed formulation

Published: July 20, 2020
By: Dr. Víctor Guevara Carrasco / Eng. Animal Science, M.S., Ph.D. Professor, Animal Science College, Nutrition Department, Universidad Nacional Agraria La Molina, Lima, Perú.
The feeding program for poultry has a major influence on profitability as feed cost accounts for up to 75% of production cost. Conventionally, it is assumed that requirements are either listed in tables or breeder nutrition guides. The Requirement Approach stems from the broken line, which is a simplification of bird response and implies that at different levels of energy or nutrients, efficiency does not change or it is zero. Bird response is curvilinear and this implies that diminishing returns operate and for that reason, economic analysis has to be used to make decisions as to the optimum level of energy or nutrients. The Response Approach necessarily assumes that growth or production rate  and feed intake, that is to say,  bird performance, has to be known to determine the optimum level.
The economic analysis necessary to optimize production has included from feed cost, going through feeding cost per unit of gain up to income over feed cost or margin as profit indicators (income – fixed cost – variable cost). Income over feed cost or margin can be mathematically represented by the profit equation:
π = Py*Y – Px*X
where:
π = income over feed cost or margin over cost
Py = Meat or egg price per kilo
Y = Live weight or egg mass, kg
Px = Feed Price per kilo 
X = Feed intake
Least cost feed formulation has consolidated feed cost as a profit indicator that assumes that performance is constant and independent of the nutritional program. However, it is widely known that changes in energy, nutrient or ingredient level often change bird performance and feed cost is not appropriate to evaluate the economics of poultry feeding. As it is shown in the profit equation, feed cost (Px) is just a part of the equation.
Manipulating the profit equation and dividing by Y we have profit per kilo
π/Y = Py – Px *(X/Y) 
where:
(X/Y) = feed conversion
Feed cost per unit of gain (Px*(X/Y)) is an improvement but can only be used when, on changing the nutritional program, changes in feed conversion are expected with no change in bird growth or production rate. 
Therefore, income over feed cost or margin is the best method to determine the economic value of a nutritional program, especially when time is fixed, since changes in feed conversion and growth or production rate are considered when different nutritional programs are compared.
Least cost feed formulation has also consolidated the idea that bird requirement is fixed and is listed in a Table or a Breeder Guide. In short, it has consolidated the Requirement Approach.
However, with this approach a common problem, which is a rise in price of protein ingredients, would be met reducing amino acid density to obtain a cheaper feed. By using Aviagen data (https://thepoultrysite.com/articles/economic-approach-to-broiler-production) we can observe the result of this decisión adapting the Table to the profit equation (π/Y = Py – Px *(X/Y) )
Balanced Protein Level, 100%: π/Y = 0.80 – 0.28*(5.32/2.95) =0.30
Balanced Protein Level,   90%: π/Y = 0.80 – 0.27*(5.25/2.84) =0.29
The comparison shows that a cheaper feed can reduce performance and be less profitable. Therefore, maximum margin is much more important than least cost, since a more expensive feed would not be a cost but it could be a great investment according to the Response Approach. In this regard, the change in approach is key.
Now, it is posible to formualte diets to maximize margin or profit by employing nonlinear programming (https://www.researchgate.net/publication/8685745_Use_of_Nonlinear_Programming_to_Op timize_Performance_Response_to_Energy_Density_in_Broiler_Feed_Formulation) but knowledge of elementary linear algebra and Excel is required. Commercial softwares have not been developed yet. However, the problem can be solved, with some effort, by employing a least cost software (linear programming) and curvilinear regression (margin versus energy, nutrients or ingredient levels) to determine first the maximum point in the curve (economic optimum). The simplest curve is a quadratic one (Y=a – bX – cX2) that can be inserted in the profit equation.
With nonlinear programming, setting nutrient density beforehand is not necessary, for instance, since by including the profit equation in the formulation the optimum energy or nutrient level is obtained in the nutritional content. At present, a free and friendly software can be found in Internet for least cost feed formulation employing linear programming (https://www.nutritionformulation.com/)  and curvilinear regression can be made with Excel.
Therefore, determining the energy density or balanced protein level is an economic decision since the nutrient requirement is not static but dynamic, and biological maximum does not necessarily coincide with economic maximum (optimum).
Related topics:
Authors:
Víctor Guevara Carrasco
Universidad Nacional Agraria La Molina (UNALM)
Universidad Nacional Agraria La Molina (UNALM)
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Frank Ivey
Feed2Gain, LLC
4 de enero de 2021
The optimum feeding program is a function of the price and quality of ingredients. Your breed is a factor, but the major factor is cost. This is why a good nutritionist will change diet formulations as significant changes in ingredient costs occur. fjivey@feed2gain.com
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Víctor Guevara Carrasco
Universidad Nacional Agraria La Molina (UNALM)
Universidad Nacional Agraria La Molina (UNALM)
3 de enero de 2021
Muabecho Feeding situations are very different from place to place. So getting help from your local university will be your best choice Greetings Dr. Victor Guevara
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Frank Ivey
Feed2Gain, LLC
28 de diciembre de 2020

Dr. Afrouziyeh has been of great service to provide a recipe and instruction for creating a non-linear least cost formulation for those that are less certain of the nutritional content of their feeds. The more variation one experiences in the ingredients they buy, the more chance there is, with linear programming, to reach a feed that fails dramatically, as Dr. Waldroup pointed out earlier. When using NIR, for example, with low variation because one has measured the needed values, the least cost linear formulation will give about the same solution as the non-linear as the linear assumes no variation which is approached by low variation.

One other area worth exploring is when to change from one feed to the next, less dense and usually less expensive diet. Real savings can be made there, as well. The practice when Park and I first met was to change feeds around 21 days of age, now it is much earlier. The question that we need to answer is how early. Most Nutritionists have a first diet that they have spent a lot of time developing and, even if lower costs could be generated, the amount fed keeps the cost mitigates the risk involved in making it cheaper. But changing from that diet at the earliest acceptable time will help reduce costs.

Frank Ivey

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Mohammad Afrouziyeh
University of Alberta
University of Alberta
19 de diciembre de 2020
Have you wondered how to account for nutrient variability in feed ingredients? Stochastic programming answers this question. I have explained this technique in detail. Feel free to check it out at https://youtu.be/xG-kyjd4wCQ Happy holidays everyone!
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Mohammad Afrouziyeh
University of Alberta
University of Alberta
29 de octubre de 2020
I have fully explained creating a Maximum Profit Feed Formulation spreadsheet where you can use non-linear programming models to maximise the profit. Feel free to check that out using the following link: https://youtu.be/33sjsiy_6ck Enjoy!
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Mohammad Afrouziyeh
University of Alberta
University of Alberta
17 de septiembre de 2020

I made a video and provided an update on different managerial targets in poultry feeding chronologically. I have discussed the least-cost and maximum profit feed formulation in this video. In addition, I have focused on the most recent (2020) targets which have been defined as managerial targets in the field of poultry nutrition.

The video is accessible via the following link: https://youtu.be/oXQaMWv6OiY.

I welcome further discussion and constructive comments on this topic.

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Alvaro Dubois
Cargill
9 de septiembre de 2020
Hi Ricardo Hume. Nice to know we are/were company colleagues. TechBro Flex™ is the name of one of Cargill's broiler model. The second, a more encompassing version, is called Panorama. Nice to know you have heard of it. We have had very nice experiences in using them in our customers, including Argentina and Spain.
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Ricardo Hume
28 de agosto de 2020

Dear Frank, I have been reading what the Feed2Gain does and I would like to know if it is possible to see an example of a printout with the results and information it gives. Also if there is a demo available. Thank you and regards

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Frank Ivey
Feed2Gain, LLC
28 de agosto de 2020
Dr. Ricardo Hume asked about the name of my program for determining maximum profit with feed formulation. It is BroilerOpt™ Feed Program and found at www.feed2gain.com. Frank Ivey
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Antônio Mário Penz Junior
Cargill
Cargill
26 de agosto de 2020

I am enjoying very much all this discussion. Thanks, Dr. Guevara for bringing your paper to this forum. Just to reinforce, least cost feed formulation starts with different paradigms that are difficult to make broad comparisons. The ingredient data base, with nutrient composition is, most of the time, not adjusted in a real time situation. Also, not all companies have strong laboratory support to update values based on energy (calculated) and nutrient changes (and anti nutritional components - soybean antitrypsins). Besides, each nutritionist has his own energy and nutrient requirements, per phase. The energy and nutrients maximum and minimum vary. The phases are not the same, the breeds vary, even in the same company, etc. So, to get to the point to calculate the final minimum cost of broiler production (cost or margin), we need to go and find environmental interference to the equation, as Alvaro indicated, to reinforce the real gains. By the end of the day, as a business, the companies need to look for the maximum benefits of its assets, that will come, besides what was said before, on feed conversion per square meter, per year. I can have the best cost calculated, but I am not using efficiently the space that the company has available. This is the reason that least cost feed formulation is a tool that must be customized and when we use non linear approach, the customization is more important yet.

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