Costs of feeding supplement for additional milk production
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6 min read
Not all additional milk production is profitable, so understanding the true cost of producing each additional kilogram of milksolids is critical. Marginal milk is the extra milk produced beyond what your pasture base can support, often achieved by adding more supplement. The profitability of that extra milk production depends on whether the marginal cost of it is lower than the milk price. Supplements are most profitable when they fill a genuine feed deficit and high pasture utilisation is maintained. Read more below about the science behind marginal milk to help you assess whether your current feeding strategy is delivering the returns you expect on your farm.
Why research marginal milk?
Marginal milk is the extra milksolids (MS) a cow produces from eating an additional unit of supplement, beyond what she would gain from pasture alone. Understanding marginal milk helps determine whether increasing milk production through additional inputs is financially worthwhile, for example, supplementary feed - although this principle is not limited to supplementary feed.
All farm systems can be profitable, however only looking at the production per cow or per hectare does not account for the marginal cost of producing additional milk. This page is a deep dive into the topic, using experimental data to support decision making around feed efficiency and overall farm profitability. It is designed to help you assess whether your current feed strategy is delivering the returns you expect.
The big question: what does it really cost to produce that extra milk?
Key findings from this research:
- Profit depends more on milksolids response (g milksolids/kg supplement) than supplement price ($/kg DM).
- For every $1 spent on supplement, farm working expenses (FWE) can increase by up to $0.95, i.e. $1.95/kg DM of supplement - almost double.
- Milksolids responses generally decrease when supplement amount increases.
To maximise milk responses to supplements:
- Minimise supplement wastage
- Monitor pasture residuals, rather than milk production when making supplementary feeding decisions.
- Adjust or remove supplement when residuals begin to rise.
- Understand how in-shed feeding influences the milk response to supplement. For example, feeding to improve cow flow rather than to manage a pasture deficit can result in a high marginal cost; consider low-cost options to improve cow flow.
Evaluating milk response to supplementary feed strategies
A trial was conducted at the Northland Agricultural Research Farm (NARF) over three seasons between 2018 to 2021 to assess milk production responses from pasture with increasing supplement input.
There were three 27ha farmlets within the NARF farm, each using different levels of supplementary feed, these were:
Farm one: ‘Pasture Only’ – no imported feed
This control farm represented the ‘baseline’ system. Cows were fed pasture and only supplement produced on the farm.
Stocked at 2.7 cows/ha.
Farm two: ‘PKE Only’ - limited imported supplement
Palm Kernal Extract (PKE) was fed when pasture grazing residuals fell below target levels. PKE was not used to create a pasture surplus for conservation and was constrained by the acceptable milk FEI limits set by Fonterra.
Stocked at 3.1 cows/ha.
Farm three: ‘PKE Plus’ - unlimited imported supplement
Cows from this farm received higher levels of imported supplement including, palm kernel, dried distillers’ grain, soya hulls and purchased pasture silage.
Stocked at 3.1 cows/ha.
Farm management
All farms followed the same farm management rules. Pasture residuals were closely monitored, and supplement levels were adjusted regularly to maintain target residuals of 1600 kgDM/ha. For each farm, income, expenses, machinery use, and staff hours were recorded to capture all costs associated with feeding supplements.
Comparing farms
Milk production on the PKE-only farm and PKE-plus farm were compared with the pasture-only farm to calculate a milk response. Results are shown as grams of milksolids per kilogram of dry matter (kgDM) of supplement fed.
Regional relevance
Although the trial was conducted in Northland and stocking rates and cow productivity may differ in other regions, the economic principles identified in this study apply nationwide.
Research Results
Profit decreased as higher amounts of supplementary feed was purchased
Financial results were adjusted for inflation from the original 2018 to 2021 trial period, using 2024 as the reference year. This accounts for the rapid inflation that occurred during the COVID pandemic period. Supplement prices (including cartage) used in the analysis were: PKE $380 per tonne, DDGS $638 per tonne, baleage $90 per bale, soya bean hulls $458 per tonne.
Profit decreased when the marginal cost of producing the extra milk was above the milk price. For each $1 spent on supplementary feed, other farm expenses increased by $0.95, effectively doubling the cost of the supplement feed. This had a significant impact on farm profitability and supplement use.
Farm working expenses per kgMS were lowest in the Pasture-only farm at $6.70/kgMS (see Table 1). Adding supplements increased average farm working expenses slightly, to $6.85/kgMS in the PKE-only farm and $7.02/kgMS for the PKE-plus farm.
Milksolids responses declined as supplement levels increased. As a result, profitability decreased because the additional cost of producing extra milk was above the milk price. The marginal cost of the extra milk produced in the PKE-plus farm had a cost of $9.38 so was only more profitable if the milk price was above this. In contrast, the PKE-only farm remained profitable across all payout levels tested due to the lower cost of that marginal milk ($7.68).
This demonstrates that using farm average costs and response rates to assess supplement profitability can be misleading. The marginal cost of producing that extra milk may be significantly higher than the farm – average cost.
Table 1: Three-year average financial results to compare different milk payouts ($8.50, $9.00 and $9.50).
| Trial group |
Milksolids (kgMS/ha) |
Farm working expenses ($/kgMS) |
Marginal cost for extra milk ($/kgMS) |
Operating profit at different milk payouts | ||
| $8.50/kgMS | $9.00/kgMS | $9.50/kgMS | ||||
| Pasture only | 916 | $6.70 | $1,821 | $2,279 | $2,737 | |
| PKE only | 1209 | $6.85 | 293 | $2,131 | $2,735 | $3,339 |
| PKE plus | 1328 | $7.02 | 119* | $2,032 | $2,696 | $3,360 |
*Margin on additional feed from PKE-only farm to PKE-plus farm
Note: Cells coloured blue represents the best operating profit at for each milk payout.
Financials have been adjusted for inflation using 2024 as the reference year following the rapid inflation that occurred during the COVID pandemic. Supplement prices (including cartage) used in the analysis were: PKE $380 per tonne, DDGS $638 per tonne, baleage $90 per bale, soya bean hulls $458 per tonne.
Marginal milk calculation
Marginal milk costs are calculated using operating expenses (which include depreciation). This reflects the additional machinery use and labour required as supplement use increases. Farm working expenses are shown in the table to allow comparison with familiar benchmark figures.
To calculate marginal milk cost, the difference in total operating expenses (including depreciation) between the Pasture‑only and PKE‑only systems is divided by the additional milksolids produced, to reflect the true cost of producing that extra milk.
Profit was sensitive to milksolids response
The milksolids responses decreased with increasing supplement amounts (See Table 2). The PKE-only farm produced an additional 293 kgMS/ha compared with the pasture-only farm, with a strong response of 113 gMS/kgDM. Adding even more supplement on the PKE-plus farm led to a response of only 92 gMS/kgDM - highlighting the importance of good supplement and pasture management.
Table 2: Three-year average milksolids production, supplementary feed use, and milksolids response.
| Trial group | Milksolids yield (kgMS/ha) | Supplement Purchased (tDM/ha) | Milksolids Response (kgMS/tDM) | Milksolids yield (kgMS/cow) | Supplement Purchased (kgDM/cow) |
| Pasture only | 916 | 342 | |||
| PKE only | 1209 | 2.59 | 113 | 389 | 837 |
| PKE Plus | 1328 | 3.88 | 92* | 426 | 1253 |
*Margin on additional feed from PKE-only farm to PKE-plus farm
Profit was more sensitive to milk responses than supplement price, and decreased by:
- $620/ha for every 25 gMS/kgDM lower response
- $274/ha for every $100/t increase in PKE price
These results suggest more time should be spent monitoring pasture residuals and adjusting feeding (to maximise milksolids response) than chasing cheaper supplement prices.
Stocking rate and supplement use improved milksolids to a point
The milksolids response to increased stocking rate and supplementary feeding were strong reflecting careful management and efficient conversion of both pasture and supplement into milk. Increasing cow numbers while feeding some supplement can deliver strong milksolids responses and higher profit per hectare.
No impact on reproduction
Across the three years, there was no impact of treatment on reproduction. The six-week in-calf rate was 75% for the Pasture-only farm, 71% for PKE farm, and 73% for PKE-plus farm. This indicated that increased levels of supplementary feeding neither compromised nor enhanced reproductive performance.
What does this mean for your farm?
The marginal milk principles can help guide feed decisions alongside your farm goals and financial outcomes. All farm systems can be profitable, but the focus on milksolids production per cow or per hectare does not account for the cost of the additional milk produced.
In terms of risk, farms that do not use imported supplementary feed are more at risk from adverse weather events that affect pasture growth. On the other hand, farms that rely on import supplementary feed are more exposed to milk and feed price volatility.
To get the best results on your farm
Focus on pasture residuals and adjust supplement as needed to enhance response rates, as wasted feed can reduce responses and erode profit margins.
Reduce or remove expensive supplementary feed where possible. While lower-cost supplementary feed helps, focus on maximising the milk response to supplement to deliver bigger gains.
Continue to identify when supplementary feed is appropriate and how it is managed to minimise wastage.
These will minimise the chance that milk revenue gains are not eroded by proportionally higher costs of production.
Funding partners
The research was conducted by the Northland Dairy Development Trust (NDDT) on the Northland Agricultural Research Farm (NARF). We would like to acknowledge project funders, Ministry of Primary Industries (Sustainable Farming Fund and Sustainable Food and Fibre Futures), DairyNZ, and Hine Rangi Trust, and project managers Kim Robinson and Chris Boom of AgFirst.
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