Economics of Longevity

Willem BurgerFarmer support and Development: George

Dairy Information Day

28 August 2012

Outline of Presentation

1. Introduction

2. Reasons for cows leaving the herd

3. Peak production and consistency of production

4. Relationship between replacing ratio and calf mortality

5. Factors effecting voluntary culling and longevity

6. Factors effecting optimal age of cow’s

7. Factors effecting the economics of longevity

8. Conclusion

• Analysing factors that have the biggest influence on the economics of dairy farming:

- Pasture production- Stocking rate- Concentrate feeding and- Reproduction

• Optimum age of dairy cattle has become important due cost of raising heifers

• Longevity:

- Long life of service or production- Number of lactations before been

replaced by an heifer

1. Introduction

• Cost of raising or purchasing heifers is much higher than cull value of cow to be replaced.

• Beneficial for an cow to stay longer in the herd.• For a cow to avoid been culled is called survivability.• Average lactations cows stays in the herd:

- Wisconsin: 3.3 3.6- UK optimum lifespan between 4.3

and 4.9

1. Introduction (Cont.)

• Major contribution to involuntary culling is endemic and metabolic diseases and infertility.

• Dairy Cattle are kept for profit

2. Reasons for cows leaving the herd

Voluntary Culling Involuntary Culling

Low milk production Did not get pregnant in time

Selling for production purposes Disease

Injured

Mastitis

Death

Culling is motivated by economic considerations

• Cows adapted to specific farming conditions is the most likely to avoid been culled.

• It is not necessary the highest producer but more consistent producer.

2. Reasons for cows leaving the herd (Cont.)

High culling rate in new herds or animals bought from different

areas

• Cows peak normally from Lactation 3 to 4.• Farmers tend to cull before they reach their peak.• Cumulative Cash flow from Lactation 1 to 10 including cost of raising

heifer.

3. Peak production and consistency of production

1 2 3 4 5 6 7 8 9 10

-10000

0

10000

20000

30000

40000

50000

60000

NPV and Cash Flow

Cash Flow Cow NPV

Lactation

Rand

Val

ue

No reason for involuntary culling:

Keep Cow as long as possible as long as profit

is positive (Income – Variable Cost)

• Calf mortality must be kept at acceptable levels especially when the herd is growing or selling of heifers is part of the business

4. Relationship between replacing ratio and calf mortality

Replacement Ratio Minimum Calf Mortality15 % 41 %17 % 32 %20 % 20 %25 % Less than 5 %

The minimum calf mortality at different replacement ratios to keep cow numbers constant

High mortality will influence the availability of heifers for

replacement

Declining cow numbers – lower income

Unprofitable cows are kept longer

Purchace Heifers:Adaptibility issues – High culling rate

4. Relationship between replacing ratio and calf mortality (Cont.)

The Effect of calf mortality and replacement ratio on herd growth over

a 10 year period

Calf Mortality

Cow Replacing Ratio

10% 15% 20% 25% 30%

10% 1263% 1000% 793% 631% 505%

15% 1140% 900% 712% 566% 451%

20% 1025% 807% 637% 505% 402%

25% 918% 720% 567% 448% 357%

30% 818% 640% 502% 396% 315%

• Cost of raising heifers – R6,780• Raising all and introduce into herd can be costly.• Not necessary increase profits

5. Factors effecting voluntary culling and longevity

Replacement of 15%

1 2 3 4 5 6 7 8 9 10R0

R10,000

R20,000

R30,000

R40,000

R50,000

R60,000

NPV

NPV

Lactation

Rand

Val

ue

Selling surplus Heifers:

Profit Between R359 – R430

per Cow per annum

Profit per Heifer:Price and raising cost

5. Factors effecting voluntary culling and longevity (Cont.)

1 2 3 4 5 6 7 8 9 10R0

R10,000

R20,000

R30,000

R40,000

R50,000

R60,000

NPV

NPV

Lactation

Rand

Val

ue

Increase in profits by increasing the average age with one Lactation:After 5 Lactations – R236 per cow per annumAfter 6 Lactations – R203 per cow per annum

In Growth phase the

cost of cullin

g a cow

and replace with

heifer is higher

Keep cow as long as it pays for itself

6. Factors effecting optimal age of cow’s

1 2 3 4 5 6 7 8 9 10R0

R10,000

R20,000

R30,000

R40,000

R50,000

R60,000

NPV

NPV

Lactation

Rand

Val

ue

Considering future profits:

Production level (15 to 18 litre)Milk price (R3-60 to R4-00 per litre)

Cost of replacing heifer (R4,000 – R8,000)

High producing Cows: Optimum

after 4th Lactation

Replacement ration of 25%

Type of production system

5 4

5.8 to 5.9

7. Factors effecting the economics of longevity

1 2 3 4 5 6 7 8 9 10

-10000-5000

05000

100001500020000250003000035000

0

1000

2000

3000

4000

5000

6000

NPV and Profit per annum

Cow NPV Profit per annum

Lactation

Rand

Val

ue

First consideration will be if there is a replacement available.

Culling a cow without replacement available – reduction in income

Keep cow as long as it can pay for itself (Income – direct variable cost)

7. Factors effecting the economics of longevity (Cont.)

Heifer available – Opportunity cost play a role.

Tools – Partial Budgeting

Cost IncomeCow to be replaced Loss of Profit from cow:

R2,052 (12.1 l)Cull value: R3,159

Heifer Cost of Heifer: R6,751 Profit from Heifer: R5,737 (15.3 l)

Total R8,801 R8,897

Difference R95

Cows are kept much longer in the herd

Favour low ranking cows and not always older cows

7. Factors effecting the economics of longevity (Cont.)

Alternative Method considering the following:

Determine the difference between cost of heifer and income from Cull:

Cost of heifer – income from cullR6,751 – R3,159 = R3,592

Daily cost:R3,592/305 = R11-80

Desired return on investment:R11-80 X 0.30 = R 3-50

Heifer ProductionReplacement cost

Cull cow priceDesired return on investment

7. Factors effecting the economics of longevity (Cont.)

Opportunity cost is R3-50 per day

Determine the difference from milk income between Heifer and Cow:

15,2 l – 14.2 l = 1 l per day

l l X R3-60 = R3-60

When the Milk production from cow is under 14.2 l, cull cow

• Different reasons for cows leaving the herd.• Involuntary culling is normally before optimum age – therefore cost to

the business.• Adapted cows stay longer in the herd – Highest lifetime production.• Voluntary culling decisions – economic basis

- Future milk production- Current daily production

8. Conclusion

8. Conclusion (Cont.)

Decision process:

Keep cow (with no other defects) to at least peak production

When in a growth phase a cow will be kept as long as it pays for itself and reproduce.

When no heifers are available for replacement, cows are kept as long as they are paying for themselves.

When decisions of keeping a cow for another lactation, using partial budget method as a decision tool

At a specific time cows can be evaluated to be replaced using opportunity cost method.

• Other Considerations

- High heifer mortality can be costly when the herd is in a growth phase or replacement ratios are high.

- When herd numbers are constant, raise only enough heifers to keep herd constant. (R1,688 per cow per annum)

• Therefore culling the right cow at the right time will save costs in the business.

8. Conclusion (Cont.)

Thank you