Heifer Replacement Costs and Their Impact on Your Bottom Line

Dr. E. Bruce Godfrey
USU Extension Economics Specialist

The net returns or profit a dairyman obtains is affected by many things. The volume of milk produced and the price received are commonly the first thing considered. Just as important to the bottom line is the cost of producing this milk. Records kept by dairy operators who are associated with one of the area technical centers in Utah indicate that milk production costs vary widely between producers - a difference of more than 50 percent between the high and low profit producers is not uncommon. Records from these producers also show wide variation for other parts of the farm and dairy operation. Examination of the profitability of various parts of the business (e.g., milk cows, replacement heifers, alfalfa production, cost of having a bull) is a key to determining what actions might be taken to increase the net returns of a dairy. Analysis of records for dairymen in Utah suggest that the raising of replacement heifers has recently been a high profit enterprise. Data from records maintained by dairymen in central Utah indicate that the cost of raising a heifer to twenty-five months of age is nearly $1150. About half of this total cost was for feed (see summary table below, additional detail can be found in the budget published in the 2001 issue of Utah Agricultural Statistics).

Any person who has recently observed the market for dairy heifers realizes that the price being paid for replacement heifers is significantly higher than the cost of raising these animals. For example, recent sales at the Smithfield, Utah, and Jerome, Idaho, auction markets indicate that high quality heifers that are nearly ready to calve are currently selling for over $2000. This suggests that a net return of about $800 can be obtained from raising and selling dairy heifers. Obviously, these net returns can differ when the market price of heifers or the cost of raising heifers changes. But, these net returns do suggest that the bottom line of a dairy operation can be affected by the success a dairymen has in raising replacements. For example, a dairyman who buys replacements for $2000 will have lower total returns than a dairyman who has excess heifers for sale. This suggests that some dairymen could profitably give greater attention to their heifer enterprise. For example, can calf death losses be reduced so more animals can be made available for sale (a possible return of about $800 per animal at current market prices)? Can someone else raise your heifers for less than you can? Given the current price for springers, it is unlikely that there are many enterprises on a dairy that have as high a potential to "turn a profit" as does raising replacement heifers. Dairymen should carefully consider actions that can affect the net returns of this as well as other enterprises in an effort to increase the net returns of the total operation.

Summary of costs of raising a Holstein replacement heifer:
Heifer calf $ 200
Feed $605
Other direct costs $154
Interest $42
Overhead $133
Total $1134