Critical Economic Decisons when Raising Heifers

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Jason Karszes presented this for DAIReXNET on December 16th, 2013. For more information, please see our archived webinars page at www.extension.org/pages/15830/archived-dairy-cattle-webinars.

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Critical Economic Decisons when Raising Heifers

  1. 1. Critical Economic Decisions when Raising Heifers Jason Karszes Farm Management Specialist PRO-DAIRY Program Department of Animal Science Cornell University
  2. 2. 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.
  3. 3. Key Areas • Quality • Costs – Feed – Labor – Non-performance • Number raised • Capturing value of excess heifers
  4. 4. 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
  5. 5. 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
  6. 6. 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 • 1st Calf lactation total milk yield • • • • • ≥80% of Mature ≥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)
  7. 7. 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?
  8. 8. Quality of The Replacement • Areas impacting quality – Overcrowding – Facilities – Nutrition – Management
  9. 9. Costs to Raise Dairy Replacements • 20 to 30% of the costs to operate the business • Investment in assets • Direct and indirect costs
  10. 10. 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.
  11. 11. Reported Costs to Raise Dairy Replacements • Michigan 1973 1980 1986 $617 $1,085 $1,177 • Wisconsin 1982 1987 1998 2000 2007 $1,549 $1,326 $1,099 $1,360 $1,649 • Washington1992 $1,242 • Pennsylvania 1998 $1,088 1985 $925 Low $1,271 Medium $1,597 High • Idaho 1992 $1,159 • New York 1990 $1,265 1993 $1,150 2003 $1,429 2007-8 $1,734 2012 $2,090
  12. 12. 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
  13. 13. 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.
  14. 14. Selected Measures Dairy Replacement Program 17 Northeast Dairy Farms, 3rd Quarter 2012 Replacement Program Number of Heifers Age, Months Weight, Pounds Total Weight Gained, On Farm Average Daily Rate of Gain % Non-Completion Rate Average 636 23.1 1,302 1,163 1.74 10.62% 80th Percentile Range 333 20.3 1,208 956 1.58 4.16% 1,305 25.0 1,368 1,272 1.96 17.66%
  15. 15. Costs, Per Day per Animal 80th Percentile Range 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 All other Costs 1 $0.205 6.8% $0.182 $0.236 $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 $2,413 1 Trucking, Insurance, Custom Boarding, Professional Services
  16. 16. Feeding Average 80th Percentile Range 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 Grown Feed 63.5% 43.8% 76.9% Purchased Feed 36.5% 23.1% 56.2% Percent of Total Labor Average 80th Percentile Range 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 $39,964 $27,655 $48,845 Cost per Worker Equivalent
  17. 17. 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
  18. 18. 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
  19. 19. Facilities • Large influence on labor efficiency • Key characteristics – Location – Bedding type – Size of pens – Animal handling • Number of moves of heifers by trailer
  20. 20. 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
  21. 21. Number of Heifers Being Raised • Quality impact – overcrowding – What number of heifers was system designed for? • Investment level – Buildings – Machinery – Manure storage
  22. 22. 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
  23. 23. N u m b e r o f H e ife rs M a in ta in e d , A ll A g e s , fo r V a rio u s C a lv in g A g e s a n d R e p la c e m e n t R a te s A v e ra g e H e rd S iz e , M ilk in g a n d D ry A n im a ls 100 N o n -C o m p le tio n R a te *, D a iry R e p la c e m e n ts 8 .0 0 % C o w R e p la c e m e n t R a te , P e rc e n ta g e 20 23 26 29 33 36 39 42 45 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 C a lv in g A g e M o n th s * N o n c o m p le tio n ra te re p re s e n ts th e p e rc e n t o f h e ife rs th a t s ta rt th e re p la c e m e n t s y s te m th a t d o n 't e n te r th e d a iry h e rd . P re p a re d b y : J a s o n K a rs z e s , S e n io r E x te n s io n A s s o c ia te , P R O -D A IR Y , C o rn e ll U n iv e rs ity
  24. 24. 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
  25. 25. 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%
  26. 26. 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%
  27. 27. 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
  28. 28. Summary Table – Replacement Only Net Enterprise Total Income Investment Return on Investment Number 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
  29. 29. Summary Table – Overall Business Net Farm Income Total Investment Return on Percent 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%
  30. 30. 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
  31. 31. Thank You! Questions? Jason Karszes JK57@cornell.edu

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