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Raising Heifers to Build Value (Video)

Date: 
Author: 
Matthew Lange
Educational Opportunities: 
Videos
Interests: 
Dairy, Young, Beginning Farmers
Home > Education & Events > June 2017 > Raising Heifers to Build Value (Video)
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When we look at heifer raising costs, there's typically two scenarios: we either raise our heifers ourselves or we outsource them to a custom grower. I'll be reprising a little bit of a presentation that our consulting group has given a number of times showing some of the differences and really focusing on the value of the heifer that we're building, rather than looking at the heifer as a cost or a commodity.

“What does it cost to raise a heifer?” This is a question I get from a lot of producers I work with. Sometimes it's a little difficult to break out all the expenses that we have in our accounting books, but generally, this is the breakout. 
  • Feed and labor are generally our largest expenses. Feed comprising about 60% to 70% of the total cost. Labor is about 10% to 15%.
  • Then we have a lot of other production costs, animal health, breeding, bedding, supplies, so on and so forth.
  • We also have to attribute some capital expense and overhead.
Typically, we see anywhere from $2.35 all the way up to $3.20 per day. It's a broad range, as far as heifer raising expenses go. Generally speaking, we see close to $1,500 to $2,000 as far as the cost to raise a heifer, and that's before the value of the heifer calf that she's carrying.

When we look at heifer raising, one scenario we also pose is which is a better deal? Case A, we have 705 days at the heifer grower versus 678. We would think a shorter term would be a better situation as far as cost goes, but what if we alter the rate per head per day? Going from 250 to 260, that's maybe not quite as clear. Are we willing to pay $0.10 more per head per day to get that days lower? Well, it's actually kind of a trick question because the rates, the cost comes out to the exact same. A lot of times we focus on the cost per head per day, and it's not necessarily the cost, it's a combination of the cost and the duration that those heifers are at the grower.
Raising_Heifers_Two_Scenarios.JPG
Obviously, the point that we're trying to make is that it's not just the cost per head per day that really matters. There are a lot of other factors that play into that: the duration that the heifer is at the grower, as well as potentially the value that we're getting of that heifer. What quality is she?

In a second scenario, we're looking at a custom heifer raising situation where the heifer is at the grower for, again, 705 days for both growers, but what if the one grower is charging us $2.75 versus $2.60 per head per day? Are we willing to pay $0.15 more per head per day? The difference at the end of the 705 days is $1,940 versus almost $1,840, so we're paying just over $100 more to have that heifer raised over that same period of time. What if we said there's the potential that she's going to give us five more pounds of peak milk in that first lactation? What is that value to us? Is it worth the additional cost?
Table_for_Heifer_Raising-FINAL.png
When we run the analysis, and in this case we're using $20 milk, and given the situation right now, that's not the case, but certainly we can use it as a guide we would produce, the increased milk would add $225 of value, in this case, of having the additional peak milk of five pounds. Obviously, there's added feed cost in order to get her to produce that much milk. We subtract off about $65 for that relative feed cost, and we come, basically, to a cost of just over $0.22 per head per day that we could effectively have a margin on in terms of our heifer growing situation.

Now, we said we would be paying $0.15 more per head per day, but yet our margin is actually just over $0.22. In this particular scenario, it actually proves that we might be better off paying more to get a better quality heifer producing more milk. What could a producer afford to pay a heifer grower for about 450 pounds more milk in that first lactation? 

In the next case scenario, we have 450 pounds more of additional milk at relatively $17 per hundred weight. We're using a 2.25 feed efficiency on those heifers with the feed cost right around $0.10-and-a-half per pound of dry matter. With that cost, we're looking at about $56 in that first lactation that we gain just based on that scenario, with feed factored in.
Pay-Related-to-Additional-Pounds
What we could effectively do then, is look at the duration that the heifers are at that grower. Well, we used 705 days in the previous scenarios, so if we take that $56 divided over that entire time that heifer is at our grower, we could actually pay that grower $0.08 more per head per day. That may be an opportunity to negotiate with a grower to get more productivity, more value of our heifers.

We've just brought to you a little bit, a snippet, of the heifer-raising expenses that we work with producers on and help them evaluate. Certainly, if you have any questions, I would encourage you to work with your nutritionist as well as your heifer grower or potential heifer grower to evaluate really looking at your heifers more from a value and margin proposition rather than just a pure cost per head per day. As always, if you have any questions or would like to learn more about our programs and services, feel free to check out compeerfinancial.com.
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