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

Published on: 07/22/2020
Author/s : 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 ...

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July 22, 2020
This is where the companies who consider the Maximum Profit Feed Formulation as a modern approach could leapfrog their competition.
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August 10, 2020

We often forget (or forget to teach) that the mathematical program known as linear programming, often known as "least cost", when in actuality it can be used to determine either least cost or maximum profit. One of the problems that the author I think overlooks is that for many nutrients feeding less than a requirement can lead to disastrous results, especially when it deals with trace mineral, vitamins or even amino acids and, feeding in excess of these requirements does not necessarily mean they will gain faster. In my experience over the years, the best profit is obtained by looking at feed cost per unit of gain, which is usually determined primarily by selection of the dietary energy level. In this case, formulating for best cost per balanced calorie is by far the most economical practical means of formulation. It would be nice if we had a lot of the response curves for different nutrients but unfortunately not many exist.

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August 10, 2020

Park W. Waldroup Overall I agree with you. However, the US has been traditionally the largest producer of corn and soybean and the leading chicken exporter. Under those conditions, we obtain the best profit by just looking at feed cost per unit of gain.

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August 10, 2020
Víctor Guevara Carrasco that’s pretty much what i said
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August 10, 2020

To make it clear, in my experience, the best cost per gain is obtained by formulating for least cost per balanced calorie. This has been demonstrated a number of times in scientific literature and my experience in formulating diets for some of the leading broiler and turkey producers have borne this out. If you want to see it in action look at the drastic drop in dietary energy levels (and levels of added fat) from 20 yrs ago to today. It was difficult at first to get this concept across (and still often is) because FCR was the ”golden standard” for performance. Today, the leading reporting services no longer even hint at FCR. A calorie from fat is much more expensive than a calorie from corn. For corn-soy type diets, I add about 1.5 % for physical properties and essential fatty acids.

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August 10, 2020

Park W. Waldroup a couple of question from a young animal nutritionist!
1. I agree that considering FCR in economical decision is outdated. Therefore, we need to add product price in our economical decision regarding feed formulation. Right?
2. I was a bit confused when you said "least cost formulation per balanced calorie". What do you mean by "balanced calorie"? Do you mean keeping a standard ration between ME and other nutrients/minerals?
3. Based on the second part of your speech on reducing dietary fat %, I assume you are choosing a lower ME (lower than industry recommended) but I am having hard time to understand how I can choose a lower optimal ME! What would be dietary ME for a finisher broiler diet where only 1.5% fat has been added? Then are you reducing other nutrients content in a ratio to ME?
I would appreciate your response.

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Nelson Ruiz Nelson Ruiz
Chemist, MS, PhD
August 19, 2020

Park W. Waldroup Dr. Waldroup, this discussion has been in the industry for decades, and you have actively participated with a lot of data over the years. So, I think that a little bit of history and actual data may help to illustrate, or better, illustrate again what you have done in reference to formulating to the least cost per balance calorie. At the 1995 Maryland Nutrition Conference (yes, 1995!) Waldroup et al. presented "Growing the large male broiler for further processing - dietary energy considerations".

It was the report of two trials that were conducted with male Ross (presumably 308) broilers which were randomly assigned to litter-floor pens with 50 birds per pen (4.65 sq-m or about 1 bird per sq-ft). Diets were formulated for starter (0 to 21 days), grower (21 to 42 days), and finisher (42 to 63 days) periods. All diets were formulated to meet the nutrient requirements for male broilers suggested by Thomas et al. [1992. Proceedings Maryland Nutrition Conference, University of Maryland, pages 45-53] with minimum amino acid requirements at 105% of the suggested levels. All diets contained 5% poultry by-product meal as a source of animal protein and were fortified with complete vitamin and trace mineral premixes, salinomycin (66 mg/kg) and bacitracin methylene disalicylate (55 mg/kg).

Ten diets were formulated within each period. These diets were obtained by increasing the amount of poultry oil from 0 to 9% in increments of 1% and formulating for optimum nutrient density (energy and associated nutrients). Starter diets ranged from 2985 ME kcal/kg (1357 kcal/lb) to 3333 ME kcal/kg (1515 kcal/lb); grower diets 3027 (1376) to 3379 (1536); and finisher diets ranged from 3078 (1399) to 3436 (1562). Calorie:protein ratios remained relatively constant across all diets within each age period. All diets were pelleted; starter diets were fed as crumbles. Body weights and feed intake were determined at 21, 42, 49, 56, and 63 days of age. At 63 days of age, sample birds were processed in a pilot plant to determine the influence of dietary treatments on processing characteristics and breast meal yields.

At the time of this publication, I was formulating for some of the poultry operations of the Continental Grain Company among them one in Puerto Rico. And by coincidence, I was very intrigued about the subject of this discussion: what was, based on bird performance, the lowest cost formulation? Since the paper by Waldroup et al. (1995) coincided very well with what I was trying to understand I decided to first, contact Dr. Waldroup to get the details of their protocol which was immediately kindly provided by fax, and second, I just replicated the paper's formulation in CGC's least-cost formulation program using the prices at that time in Puerto Rico for the ingredients used by Waldroup which of course were corn-soy, poultry by-product meal etc., quite closed to our formulation reality at the time.

The results and discussion presented by Waldroup et al. (1995) were targeted at live and further processed performance at 63 days of age while my specific objective was to estimate, using their data, the lowest formulation cost at 49 days which was my market. In other words, I wanted to estimate the range of metabolizable energy for the lowest cost of live performance at 49 days of age. As indicated above, overall 10 feeding programs were evaluated for which the Mean Diet Energy (MDE, kcal/kg) were calculated and performance data were reported at 21, 42, 49, 56 and 63 days of age. My final report contained nine tables, however, here for the purpose of this discussion two tables are sufficient.

Table 1 taken directly from Waldroup et al. (1995) shows that with all feeding programs the highest MDE resulted in the lowest feed conversion ratio (only a slight numerical exception at 42 days). However, at 49 days of age the lowest cost of feed per kg of gain (Table 2) was feeding program 2 with a MDE of 3069 kcal/kg and FCR 1.934 instead of feeding program 10 with a FCR of 1.826 for a MDE of 3383. The former is the optimal lower cost of ME for this dataset at 49 days of age. Table 2 also shows that there are relatively minimum differences around programs 1 to 4, which were low ME with low levels of added poultry oil. However, at much higher levels of added poultry oil (therefore higher MDE) the cost difference is economically significant. Program 2 versus Program 10 at 49 days of age for 1 million kg of broiler meat is $12,832. Just as you said, a calorie from fat is much more expensive than a calorie from corn. Nelson Ruiz Nutrition, LLC, Suwanee, GA USA.

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August 17, 2020
Dr. Guevara, you and Park make excellent points and your concept is clearly a useful one. My experience when working with a smooth function for growth, years ago, is that making decisions such as when to change a feed are not easily determined. So, when a user looks at this kind of program, the issue is whether or not to modify the starter feed after much time finding a diet that gives a good start. Then, how much of each feed should one feed becomes a hard question to determine. Another is the impact on feed conversion which is often the way a manager judges a nutritionist. Lastly is carcass quality. We know that if we ratio feeds to find the least cost "balanced calorie", we will keep the same carcass quality, but if we find moving off the energy to protein ratio we are using is needed, we do not know what will happen.

More complex programming is required to "fit" growth under any change a nutrtionist might need to consider.

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Ricardo Hume Ricardo Hume
Agricultural Engineer
August 18, 2020

The minimum cost per balanced calorie tells us what the "technical optimum cost" is but, as the microeconomic theory tells us, the "maximum benefit" is where the "marginal cost" cuts the "marginal income ($/kg)" curve and this happens after the "optimal technical cost" has been reached.
My source: Microeconomic Theory a Mathematical Approach, J.M.Henderson; Richard Quandt.

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Ricardo Hume Ricardo Hume
Agricultural Engineer
August 18, 2020

In order to compare the performance of different grow-out flocks, I use the same equation as Dr. Víctor Guevara Carrasco.

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Ricardo Hume Ricardo Hume
Agricultural Engineer
August 19, 2020

I would like to add a few more comments to “Economics of Poultry Feeding”.
First, I agree with Dr. Victor Guevara Carrasco's work on this subject, in fact it is similar to my presentation at the Congreso de Empresas Argentinas de Nutrición Animal (CAENA 2017) “Medición de la Productividad en lotes de Parrilleros” (Productivity Measurement in Broiler Flocks).
Second, I also think that it is interesting and correct as Dr. Park Waldroup says to formulate for the “balanced calorie cost” especially in times of low prices for chicken meat.
In this case, it is necessary to calculate the change in feed conversion (FCR) in order to
make the right decision.
Both approaches complement each other very well, the second one to design the best feeding program and the first one to evaluate the results of different flocks.

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Alvaro Dubois Alvaro Dubois
Technical Consultant at Cargill
August 21, 2020

That has been a wonderful line of discussion to follow. I would like to correct Dr. Guevara's statement, "Commercial softwares have not been developed yet". There are actually quite a few developed and in use by poultry companies around the world. Dr. Ivey, for example, developed two and my company also did the same.
Completely agree with Dr. Ivey's observation that the optimization problem is really much more complex than stated. Energy and ideal protein have to be optimized together (not on a fixed ratio) since there exists interaction between both, especially for feed intake. Impact on yields are also fundamental as they affect revenues. Customization for a given company (actually for each slaughtering plant) situation is fundamental. More complicated yet is that the responses for ideal protein is different for different breeds, response to energy is different between mash and pelleted diets and response to both is different in different ages and sex.
Depending of the company, it might make more sense to optimize the problem considering age as fixed or body weight as fixed variable. Finally, optimizing for the average bird (as most models do) or optimizing the whole production system taking in account available barn area, planned slaughtering number, downtime, placement density and age can be produce quite different outcomes, especially if we consider that changing parameters like downtime (to accommodate eventual changes in age) may also impact performance (where litter is reused).

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Lawal Sesan Lawal Sesan
B.SC, M.Sc and Ph.D IN VIEW
August 22, 2020
Formulating least cost for better profit, is a good idea and its key in poultry business but there are laws that should be obeyed, using cheap ingredients with almost the same value with convetional ingredients in terms of nutrition can easily be done but at the end are you sure of the fibre content is not ecxceding the normal value, are all your ingredients not containing anti nutritional factors and no traces of toxins that can cause mortality and apart from this each seed you are using may not contain the exact crude values expected, in most cases they contain lesser, these are some of the problems we face in Africa, there are lots of ingredients that can be use but you find that all those you can use has one problem or the other, so most of us that are nutritionist will have to carry out proximate analysis after feed formulation to be very sure of what we are feeding to the birds.
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Ricardo Hume Ricardo Hume
Agricultural Engineer
August 22, 2020
Alvaro,
I agree with you that there are a few softwares like the one Dr. Frank developed for you (is it TechBro Flex?) and that more completely address the problem of minimizing the cost per kg but unfortunately not all are available to the general public.
By the way Alvaro, I worked for Cargill for twenty-four years as a Nutritionist in Argentina and Spain so, in some ways, I consider us to be “colleagues”!
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Lawal Sesan Lawal Sesan
B.SC, M.Sc and Ph.D IN VIEW
August 27, 2020

Ricardo Hume thank you very much, how can I get the software?

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August 26, 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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Mangalmurti Pathak Mangalmurti Pathak
MVSc & A.H. Animal Nutrition
September 14, 2020
Antônio Mário Penz Junior
I personally feel that least cost feed formulations tool to be used for forcasting feed ingredients,managing inventory and designing formulations based on broiler/ egg rates
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Jorge Reyes Otero Jorge Reyes Otero
Ing. Zootecnista
August 26, 2020
Congratulations Dr. Guevara for your excellent paper!!
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August 28, 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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Ricardo Hume Ricardo Hume
Agricultural Engineer
August 28, 2020
Frank Ivey Dear Frank thank you for providing me the reference.
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Ricardo Hume Ricardo Hume
Agricultural Engineer
August 28, 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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September 3, 2020
Ricardo Hume glad to reply. You can email me at fjivey@feed2gain.com. Could let you test drive the program, if that is of interest.
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August 30, 2020

Very interesting paper, educative, motivating and encouraging. Am looking forward for more to come insha Allah. My best regards.

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Alvaro Dubois Alvaro Dubois
Technical Consultant at Cargill
September 9, 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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fatai adeyemi yisau fatai adeyemi yisau
Poultry farmer
September 11, 2020
Yes.
I am interested because am planning to have my own feed mill infuture. I would like to know the process and the procedure is will follow
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September 17, 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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Ricardo Hume Ricardo Hume
Agricultural Engineer
September 17, 2020
Mohammad Afrouziyeh Very interesting approach to formulate for maximum profit.
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