September 5, 2017 at 3:32 p.m.

Heifers: Money in the bank or eating your lunch?

By Jim Bennett- | Comments: 0 | Leave a comment

Bobby Leonard, my old college roommate, told me his mother often said "Having boiled potatoes in the refrigerator is like having money in the bank." Presumably, what Mrs. Leonard meant was that one could do many things with those potatoes, in different ways, to put food on the table for the family. Historically, many dairy farmers have thought the same way about dairy heifers: just like money in the bank. One could sell springers, or calve them and sell some, or calve them and keep them all. All options seemed to work out financially, so indeed, heifers were like money in the bank.
Times change and times have changed regarding the economics of raising heifers. What has changed is feed cost, and specifically feed cost compared to the price of a springing heifer. Two studies from 2007, from the University of Wisconsin and Cornell University, estimated total raising costs to be $2.25 and $2.49 per day or $1,649 and $1,734 to calving, respectively. Feed costs were estimated to be 51 percent of the total cost. The Wisconsin study was updated in 2013, and total costs were estimated to be $1,863. This is $3.04 per day. Feed costs were now 57 percent of the total costs. Fewer farms can now make money raising heifers for sale before or after calving. Likewise, fewer farms can make money by calving in excess heifers and selling perfectly good, profitable older cows to market or even to other farms for dairy purposes. Also, farms that keep and calve all their heifers may find it more difficult because their herds have gotten younger, and we all know that heifers do not milk nearly as well as older cows.
The cost of raising replacements is now second only to feed cost in the largest costs of production on a typical dairy farm. Are your farm's replacements eating your paycheck? Unfortunately, in many cases this may be true. Our practice maintains a database of nearly 20,000 dairy cows in herds in southeastern Minnesota. In these herds for 2013, we found that the average ratio of youngstock in inventory to lactating and dry cows is 100 percent. The FinBin financial summary from the University of Minnesota showed $226.86 net profit, over labor and management per cow for dairy farms in 2013. There are, of course, lots of ways to measure profit, and a variety of ways to define a dairy farm, so the average return may be much different by other measures. For the sake of argument though, let us assume that the average dairy made $226 per cow per year or $0.62 per cow per day in 2013. Let us also assume the average dairy spent $3.04 per heifer per day, and the average dairy has one heifer in inventory for each cow. If so, then the cost of raising a heifer was about five times the net profit per cow. If one could reduce heifer raising costs by 10 percent, or $0.30 per day, the net profit would be $0.92 per day or $336 per cow per year. This is nearly a 50 percent increase in net profit for the entire enterprise.
What is even more remarkable is that the average farm can quite easily accomplish this, because few farms actually need all those heifers. In our data set, the lowest ratio of heifers to cows is 67 percent. This farm achieves this by selling excess young heifers, and by calving the rest at an average of 22 months of age. If an average farm just calved heifers younger, say from 24.4 months to 22 months, this would result in about 10 percent less heifers in inventory at any time, and could result in 10 percent less replacement costs. So without even selling excess heifers, the average farm might be able to increase profit by 50 percent just by calving heifers at a younger age.
Because of excellent reproduction in adult cows, excellent calf management, and the use of sexed semen, and in some cases less than excellent heifer growth or reproductive management, some farms might have a heifer to cow ratio of 150 percent or more. If we assume this to represent an extra 50 percent total heifers, and an extra 50 percent of cost, this is an extra $1.50 per day per adult cow in the herd.
Many farms might substantially increase total farm profits by both reducing the average days to first calving, and by selling excess animals as calves. Most well-managed farms could probably reduce heifer inventory to around 80 percent of cows without much difficulty. This would require achieving good growth rates and reproductive performance of replacement animals, both of which are being done on many farms today. If this really resulted in a 20 percent reduction in heifer raising costs, the farm would make an additional $0.61 per cow per day.
Granted, this financial analysis is very crude, and reducing heifer inventory will not immediately or perhaps, ever result in a one to one savings. Extra buildings will not be torn down, extra feed will not likely be sold, and extra labor may or may not go away. There are all sorts of reasons why the results of reducing inventory will not be as predicted above. However, the point is this: Replacement raising costs are a substantial expense for every dairy, and almost every dairy can reduce those costs. Reducing those costs could result in a substantial increase in profit for the farm.
Many dairies could reduce heifer raising costs substantially, and they can do so without tremendous effort. So for many farms, heifers are not like Mrs. Leonard's boiled potatoes. Instead of being your lunch, they may be eating your lunch.[[In-content Ad]]


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