Critical Economic Decisons when Raising Heifers

Critical Economic Decisions when Raising Heifers

Jason KarszesFarm Management Specialist

PRO-DAIRY ProgramDepartment of Animal Science

Cornell University

Goal of The Replacement Program

The primary goal of all heifer programs is to raise the highest quality heifer who will maximize profits once she enters the lactating herd. A quality heifer is one carrying no limitations into the dairy herd that would hinder her ability to produce under the farm’s management system. Profits are maximized by obtaining the highest quality heifer at the lowest possible cost.

Key Areas

• Quality• Costs

– Feed

– Labor

– Non-performance

• Number raised• Capturing value of excess heifers

Relationship with the Dairy

• Large impact on overall financial performance of the dairy businesses– Quality of animal that enters herd

– Investment

– Daily costs

– Excess animals

Quality of the Replacement

• Growth vs. milk• Calving problems

– Too heavy (fat)– Too light (frame)

• General condition of the animal– Mastitis– Feet and legs– Injury

• Prior treatments• Replacement Heifer Management Snapshot

Quality of The Replacement

• 1st Calf Heifers “Treated” as Calf/Heifer* ≤30% 24 hrs. 3 mos. ____, 4 mos. fresh ____

• DOAs in first calf heifers ≤9% Male DOAs. ____, Female DOAs ____

• 1st Calf average peak milk ≥80% of Mature • 1st Calf lactation total milk yield ≥80% of Mature

• 1st Calf Culls ≤ 60 Days in Milk ≤5% • 1st Calf ME’s ≥Mature

• 1st Calf “Treated” in Lactation* ≤15% • 85% retention (any herd) to 2nd lactation ≥85% • Lower #1 reason for 1st lactation culls (continuous improvement)

Quality of The Replacement

• Net present value of earnings • Higher the quality, higher the value• What is the current quality of the

replacements?– What is being tracked?

• What improvements can be made?• What value do the improvements have?

Quality of The Replacement

• Areas impacting quality– Overcrowding

– Facilities

– Nutrition

– Management

Costs to Raise Dairy Replacements

• 20 to 30% of the costs to operate the business

• Investment in assets• Direct and indirect costs

What is The Cost?

• Are they free?

• Just purchased feed?

• Just hired labor?

• The sum of:– All inputs, cash and non-cash

– Fixed costs associated with capital investments

– Opportunity cost of capital

– Charges for animals not completing replacement program.

Reported Costs to Raise Dairy Replacements

• Michigan 1973 $6171980 $1,0851986 $1,177

• Wisconsin 1982 $1,5491987 $1,3261998 $1,099

2000 $1,360 2007 $1,649

• Washington1992 $1,242

• Pennsylvania1998 $1,0881985 $925 Low$1,271 Medium$1,597 High

• Idaho 1992 $1,159

• New York 1990 $1,2651993 $1,1502003 $1,4292007-8 $1,7342012 $2,090

What is The Cost?

• Hard to know what the “Average” is• Conduct study every 5 years to capture

costs on farms• 17 farms have completed study• A descriptive study

From Birth To Calving

• The following tables represents what the costs were for these 17 farms.

• If all input costs and usage levels stayed the same over two years, this is what the cost would be.

Replacement Program AverageNumber of Heifers 636 333 1,305Age, Months 23.1 20.3 25.0Weight, Pounds 1,302 1,208 1,368Total Weight Gained, On Farm 1,163 956 1,272Average Daily Rate of Gain 1.74 1.58 1.96% Non-Completion Rate 10.62% 4.16% 17.66%

Selected MeasuresDairy Replacement Program

17 Northeast Dairy Farms, 3rd Quarter 201280th Percentile Range

Costs, Per Day per Animal Average %

Feed $1.597 53.3% $1.296 $2.051

Labor $0.359 12.0% $0.215 $0.509

Bedding $0.131 4.4% $0.028 $0.293

Health $0.061 2.0% $0.028 $0.128

Breeding $0.069 2.3% $0.036 $0.107

Machinery, Operation & Ownership $0.123 4.1% $0.056 $0.225

Building, Operation & Ownership $0.171 5.7% $0.070 $0.300

Manure, Storage & Spreading $0.073 2.4% $0.024 $0.150

Non-Performance Expense $0.113 3.8% $0.034 $0.179

Interest on Daily Investment $0.205 6.8% $0.182 $0.236

All other Costs1$0.094 3.1% $0.000 $0.440

Total Cost per day per Animal $2.99 $2.66 $3.40

Total Cost per Pound of Gain $1.72 $1.52 $1.89

Total Cost per Animal Completing System $2,084 $1,860 $2,263

Total Investment in Animal $2,232 $2,010 $2,4131 Trucking, Insurance, Custom Boarding, Professional Services

80th Percentile Range

Feeding Average

Average Daily Rate of Gain 1.75 1.58 1.96

Average Daily Dry Matter Intake per Animal 15.18 12.20 19.16

Feed Conversion Ratio(Lbs. of Gain/Lbs. DM) 0.12 0.09 0.15

Feed Cost per Pound of Dry matter $0.112 $0.089 $0.142

Feed Cost per Day per Animal, On Farm $1.673 $1.423 $2.051

Feed Cost per Pound of Gain, On Farm $0.958 $0.839 $1.195

Percent of Total

Grown Feed 63.5% 43.8% 76.9%

Purchased Feed 36.5% 23.1% 56.2%

Labor Average

Heifers per Weighted Daily Labor Hour 39.4 26.4 57.6

Pounds Gained per Weighted Daily Labor Hour 97.5 30.9 176.8

Cost per Heifer Per Day $0.378 $0.215 $0.511

Cost per Pound of Gain $0.217 $0.124 $0.303

Number of Annual Worker Equivalents 2.14 0.95 4.27

Pre-Weaned Heifers per Hour 11.6 6.2 21.7

Post-Weaned Heifers per Hour 59.0 38.8 102.1

Cost per Worker Equivalent $39,964 $27,655 $48,845

80th Percentile Range

80th Percentile Range

Feed

• Single largest expense – 53% of total• Range = $1.42 - $2.05 per head per day• Key factors

– Forage quality

– Time on feed

– Dry matter intake

– Feed conversion

Labor

• Second largest expense – 12% of total• Large range across farms

– <$150 to >$350 per heifer completing system

• Labor efficiency– <30 to >55 heifers per labor hour

Facilities

• Large influence on labor efficiency• Key characteristics

– Location

– Bedding type

– Size of pens

– Animal handling

• Number of moves of heifers by trailer

Non-Completion

• The expense associated with animals that start the system and don’t complete the system

• Died and sold as non-performers• Allocated to animals that complete the

system• Relationship to quality

Number of Heifers Being Raised

• Quality impact – overcrowding– What number of heifers was system designed

for?

• Investment level– Buildings

– Machinery

– Manure storage

Number of Heifers Being Raised

• What is future plans of the dairy?• Capturing value of excess heifers

– When should they be sold?– Should they even be raised?

• How do you decide who to sell?– Genetic– Environmental conditions

• Growth• Illness

Number of Heifers Maintained, All Ages, for Various Calving Ages and Replacement RatesAverage Herd Size, Milking and Dry Animals 100Non-Completion Rate*, Dairy Replacements 8.00%

Cow Replacement Rate, Percentage

Calving Age 20 23 26 29 33 36 39 42 45Months

18 31 36 41 45 52 56 61 66 70

20 35 40 45 50 57 63 68 73 78

22 38 44 50 55 63 69 75 80 86

24 42 48 54 61 69 75 81 88 94

26 45 52 59 66 75 81 88 95 102

28 49 56 63 71 80 88 95 102 110

30 52 60 68 76 86 94 102 110 117

32 56 64 72 81 92 100 109 117 125

* Non completion rate represents the percent of heifers that start the replacement system that don't enter the dairy herd.

Prepared by: Jason Karszes, Senior Extension Associate, PRO-DAIRY, Cornell University

What is the Relationship?

• Setting the base– Treat heifer enterprise as a separate business

– Set budget for dairy to buy heifers

– Current enterprise performance

– Project changes in performance

Base Scenario

• 300 cow dairy• Stable herd size• 36% cull rate, last 5

years• Budgeted expense

per heifer = $1,700• Sell calves for $150

• Cost/day, raising costs (cash), per heifer = $2.30

• Age of first calving = 27 months

• Capital investment per heifer = $700

• % heifers cull rate per year = 7%

Replacement Enterprise - Base

• Number of heifers needed to maintain herd size = 264

• Total cost per day per heifer completing system = $2.72(cash cost + depreciation + non-performance expense)

• Total cost of animal = $2,236(no beginning value or interest on investment)

• Net enterprise income = -$72,213

• Total investment in enterprise = $519,101

• % return on total investment = -13.91%

• Overall dairy business % return = 7.70%

Changes that Can Be Made

• Improve quality of animal + $200 premium• Lower raising costs by $.05 per head/day• Decrease calving age by 4 months• Decrease number needed – dairy cull rate –

from 36% to 32%• Decrease heifer cull rate from 7% to 2.5% • Sell excess heifers - $1,700• Do them all

Summary Table – Replacement Only

Net Enterprise Total Return on Number

Income Investment Investment Raised

Base -$72,213 $519,101 -13.91% 264

Lower Cost -$67,308 $512,964 -13.14% 264

Decrease Age -$40,898 $405,198 -10.09% 225

Dairy Cull% -$64,189 $461,423 -13.91% 220

Heifer Cull% -$58,031 $474,710 -12.22% 254

Premium Paid -$52,882 $524,746 -10.08% 264

Combined -$2,800 $329,472 -0.85% 189

Comb with int. inv. -$7,191 $386,514 -1.86% 189

Comb sell excess -$8,681 $374,076 -2.00% 237

Summary Table – Overall Business

Net Farm Total Return on Percent

Income Investment Investment Heifers/Cows

Base $273,159 $2,769,101 7.70% 88%

Cost $277,974 $2,762,964 7.89% 88%

Age $304,474 $2,655,198 9.21% 75%

Dairy Cull% $301,583 $2,711,423 8.91% 78%

Heifer Cull% $287,342 $2,724,710 8.34% 83%

Premium Paid $292,490 $2,774,746 8.38% 88%

Combined $362,972 $2,579,472 11.75% 63%

Comb w int. inv. $358,581 $2,936,514 11.32% 63%

Comb sell excess $357,091 $2,684,491 11.07% 79%

Summary

• Replacement program impacts overall farm performance

• Quality is key focus

• Feed and labor are the largest two cost areas

• Non-performance expenses should be minimized

• Number of heifers raised a management question

Thank You!

Questions?

Jason Karszes

[email protected]