Field Notes Blog > Evaluating Replacement Costs in a Struggling Dairy Economy

  • Evaluating Replacement Costs in a Struggling Dairy Economy

    September 27, 2017

    Featured Guest Writer: Heather Weeks, AgChoice Loan Officer

    “Should I raise my dairy steers?”

    A customer recently asked me this question in a related discussion about what to do with his excess heifers. Anecdotal evidence suggests that most farms raise more heifers than necessary to maintain their herd size. Raising more head, either heifers or steers, ultimately becomes a question of economics.

    For the steer question, I spoke with Matt Meals, AgChoice Farm Credit ag business consultant.

    “Feed inventory and housing are the two biggest factors,” Matt said.

    He explained that farms able to feed refusals or farms with sufficient inventories to feed excess steers for minimal cost, might see a gain from raising steers to feeder weights rather than selling bull calves. Housing also is an important consideration; do not compromise the future of the herd (dairy replacements) to provide space for raising extra steers.

    The bottom line is the dairy is the priority. Allocate feed inventories and housing to the dairy animals and replacements specifically.

    However, many farms already feed more replacements than needed to maintain a certain herd size. Each farm’s priorities will determine how to handle this situation. The two biggest determinants are the cost to raise these heifers and culling decisions.

    Why are cows leaving the herd?

    This is a discussion for the farm’s veterinarian and genetics representative. How does the farm make culling decisions? Are the extra heifers needed because mature cows are leaving the herd for health reasons? If so, managing the lactating herd’s health may be the first priority before turning to the heifer question. The mature herd will present the best opportunity for maximized production, as long as these animals remain healthy and viable.

    Cost to raise heifers

    The common refrain is that it takes one-and-a-half lactations for a heifer to make back the cost it took to raise her. If heifers, either springers or fresh in their first lactation, leave the herd before making it to the second lactation, then there may be a net loss on that individual animal.

    Two questions that must be answered are: 1) what is the cost to raise a replacement from birth to calving, and 2) at what age should extra heifers be sold?

    1. In a 2013 study, The Pennsylvania State University’s Dr. Jud Heinrichs quantified both the direct and indirect costs to raise heifers on 44 farms in central Pennsylvania. Feed and labor account for the two largest cost centers.

      The total direct costs, including feed, labor, bedding, vet and breeding, totaled $1,808/head on average. Feed costs alone comprised $1,300 (72%) of that amount. When adding the indirect costs, including related operating and overhead expenses, that total can easily top $2,000/head.

     

    The variation between efficient and inefficient herds differed greatly between farms. However, if we assume that most farms are “average,” then most farms would be hard-pressed to sell a springing heifer for $2,000 in today’s economic environment.

     

    Comparing Efficient vs. Inefficient Heifer Raisers

     

     

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    Feed Costs ($/heifer)

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    Labor Costs ($/heifer)

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    Milk produced by first lactation heifers as a % of mature herd mates

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    Age at first calving (months)

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    Heinrichs, et. al., (2013). Identifying efficient dairy heifer producers using production costs and data envelopment analysis. Journal of Dairy Science, 96 (11), pp.7355-7362.

     

    Efficient herds gained on the inefficient herds both in cost and income, with efficient herds enabling heifers to enter the lactating herd earlier (at 23.7 months) and through stronger performance compared to their mature herd mates.

     

    By knowing the costs to raise heifers, a farm can begin to discuss how to manage replacement inventories.

     

    1. Advances in reproduction, genetics, management and nutrition have all contributed to improved health and retention of replacement animals in dairy herds. As a result, farms are raising more heifers than may be necessary to maintain a herd.

      How can you find out if you have more than enough heifers? Penn State Extension offers a “Herd Metrics” application on its website, and many other spreadsheets are available. All that is required is entering basic herd statistics such as cull rate, calving interval and heifer numbers. This information can be found on a DHIA 202 Summary Sheet.

    Knowing how much it costs to raise a heifer from birth to calving, the farmer must now consider how to manage existing heifer inventories. When cash flow is tight, selling extra heifers may be an option to gain additional income in the short-term. While the price of a dairy heifer may currently be less than the costs to raise her (see above), the needed income may be a relief while also reducing the feed and management needs of that animal.

    Another option is to work with a veterinarian and herd help representative to discuss using genomic testing or other genetic parameters to sell younger heifers to mitigate the cost of raising young stock.

    Farms have many options when deciding how to handle extra heifers or determining which animals to raise and which to sell. The best option will depend on current herd health metrics and long-term goals of the farm.

    In challenging economic times, the biggest question is how to use resources efficiently. If sufficient forage inventory exists, raising steers for additional income improves cash flow. On the other hand, if a farm is feeding more heifers than needed in the lactating herd, opportunities for selling excess animals may also provide income while enabling farms to focus long-term herd profile improvement through genetic selection and enhanced herd health.

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