EXIT HERE! It`s Your Cull

Tuesday, May 7th, 2013

Even though we write from Canada where Supply Management supports against extreme variation in milk prices, there are more and more of our fellow producers in from Canada and the US quietly exiting from the dairy industry. For the time being, total production is maintained by the increased herd size. Whether it`s exiting from the business entirely, or deciding which cattle are not pulling their freight (Read more: Why You Should Get Rid of the Bottom 10%), the decisions you make about the future of each cow directly affect your dairy farming future.

The Numbers are Up

In the US after dropping from high levels in January to a more-normal range in February, slaughter of cull dairy cows crept back up in March. According to the “Livestock Slaughter” report by the USDA on Thursday, April 26th 274,000 dairy cows were slaughtered under federal inspection in March. — up 15,000 head from February, but down 4,000 head from March 2012. In January, the number of slaughtered dairy cows reached 297,000 — the highest monthly slaughter figure since 1986. This high cull rate came as no surprise, since many farms have had to deal with high feed cost and low profitability.

Tough Call! Tough Cull!

When you`re already facing mounting costs on every front, it`s seems disloyal to put any of the blame at the feet (or udders) of the cows you love working with every day. For many, although necessary, it isn`t as easy as firing the bottom 10% (Read more: Why You Should Get Rid of the Bottom 10%). The question involves a full range of variables including the financial, the emotional and all the other “when, why and how” questions.

Say “When!”

Quite often when serving family and friends a beverage we automatically offer the choice, “Say when!” Unfortunately, when the glass of dairy life is filling with the hard issues of debt and sustainability, deciding when enough is enough is much more difficult and definitely not hospitable.

At a basic level the decision to cull less-productive cows is made on how much room is available for housing and/or how many are needed to fill quota. At the financial level, bankers and lenders have definite opinions on keeping the barn full for cash-flow reasons. Ironically, lenders should be the first ones who see the value in pencilling out all the numbers. In an article entitled, “Rewriting Culling Decision with Changing Marketing Decisions” Dr. Jeffrey Brewley of the University of Kentucky urges dairy breeders to consider 4 steps:

Calculate the breakeven production level necessary to cover feed costs.
Each cow, at a minimum, should produce enough milk to cover the costs of the feed she is eating.
Cows below the minimum level must be culled from the herd. As feed prices increase or milk prices decrease, the breakeven production level increases.
Although difficult to consider, if the majority of the herd falls below the breakeven level it is time to seriously consider exiting the dairy industry.

Leaving by Example

The very informative Brewley article provides statistical examples and tables of production costs

Table 1. Breakeven milk production levels (pounds per cow) needed to cover daily feed costs for varying daily feed costs and milk prices.

“For example, when milk prices are high ($25 per cwt) and feed prices are low ($4 per cow per day), breakeven milk production level to cover just feed costs is only 16 pounds per cow per day.
On the other hand, when feed costs are high ($10 per cow per day) and milk prices are low ($12 per cwt), breakeven milk production level is 83 pounds per cow per day. With today’s feed costs for many herds in the $8- to $10-per-cow range with milk prices around $20 per cwt, breakeven milk production levels range from 40 to 50 pounds. As feed and milk prices change, dairy producers need to re-evaluate when cows should be culled.” Jeffrey Brewley goes on to say,” This method for calculating when to cull dairy cows only accounts for feed costs. Feed costs account for the largest percent of total costs (50 to 75 percent) but do not account for all costs.
Thus, the true breakeven milk production level will be a few pounds higher and will vary considerably from farm to farm.”

Beyond the Milk

Unfortunately, culling decisions are seldom based on a single factor. For a cow beyond mid-lactation the most important issue is whether or not she is pregnant. Cows pregnant in later lactation and producing below daily feed costs can be dried off early. Of course, the future for these cows depends on other factors such as the feed costs during her dry period, the length of the dry period and the projection of whether she will be able to produce enough to pay for the next lactation. Finally, the availability of a replacement for her must be factored in.

“Show Me the Money!”

The constant repetition of the demand for the sports agent in the movie Jerry McGuire to “Show Me the Money” was humorous but not entirely without a reasonable basis for sustaining a profitable dairy business. The actual calculations for this “money showing” retention pay-off are fairly complex. Dr. David Galligan from the University of Pennsylvania has an excellent dashboard to calculate the retention pay-off for an individual cow in your herd (Click here to view this dashboard). The concept is also useful when deciding what cows to cull. It comes down to weighing of the future income potential compared to the income potential of the replacement heifer brought into the herd. Culling is recommended when numbers show that the future heifer will outperform the present cow.

How Old is Too Old?

Experts, such as Dr. Greg Bethard of G&R Dairy Consulting Inc., caution that the bottom line on culling decisions is also affected by the age of the animals involved and the decisions are different for younger cows than they are for older ones. “The future income potential of an older cow is limited. The future income potential of a pregnant cow in late gestation is much higher than that of an open cow. The future income potential of a non-lame, low SCC cow is higher than a lame, chronically high SCC cow.” The list of cull reasons for your particular situation could be much longer than the ones mentioned here. The basic points to consider are:

Every milking cow needs to cover the cost of the feed she consumes. No debate.
Pencil in the realistic amount earned by the current animal compared to the potential income from her replacement. Do the math.

The Bullvine Bottom Line

Business minded breeders are finding that culling is key. With such important decisions affecting success on the dairy farm, your knowledge of your own herd, your cows and your marketplace is the key to your survival. It’s your cull.