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Department of Agricultural Economics, Michigan State University, East Lansing 48824
Corresponding author: C. A. Wolf; e-mail: wolfch{at}msu.edu.
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ABSTRACT |
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 TOP ABSTRACT INTRODUCTIONMATERIALS AND METHODSRESULTS AND DISCUSSIONCONCLUSIONSREFERENCES |
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Key Words: heifer management • custom heifer growing • national survey
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INTRODUCTION |
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TOPABSTRACTINTRODUCTIONMATERIALS AND METHODSRESULTS AND DISCUSSIONCONCLUSIONSREFERENCES |
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Contracting or outsourcing the dairy heifer enterprise has several advantages and disadvantages for both the dairy farmer and heifer grower. The major advantages to the dairy producer include the potential to free labor, management, feed, or facilities for use by the milking herd. Disadvantages may include increased cash outflow, loss of management control, biosecurity risks, and potential for conflict (Wolf and Harsh, 2001). With respect to the custom grower, commercial heifer raising presents a potentially profitable business opportunity that may productively utilize existing facilities, labor and management (Endsley et al., 1996).
With little objective and comprehensive information about commercial custom heifer growers available, a survey was undertaken to examine custom heifer growers including operation size, management practices, and contract terms. The survey gathered information on a wide variety of variables related to the structure and operation of the custom heifer grower industry, including current farm size, facilities and production methods, operator and labor characteristics, and contract terms and incentives. Survey results and analysis presented here may be useful for existing custom heifer growers, dairy farmers, dairy industry personnel, and others interested in the custom heifer growing business.
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MATERIALS AND METHODS |
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TOPABSTRACTINTRODUCTIONMATERIALS AND METHODSRESULTS AND DISCUSSIONCONCLUSIONSREFERENCES |
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Only those respondents who were active heifer growers were included in the summary statistics reported (a total of 65 potential respondents for each question). When examining the results, the summary statistics presented are accompanied by the "number of farms reporting", which indicates the total useable responses or respondents to a given question. Consistent with Michigan State University research requirements, survey respondents had the option to answer, or decline to answer, individual questions at their discretion. In addition, some questions allowed for multiple responses.
Responding operations were located in 23 states. States were divided into four geographic regions to allow further description and analysis. Regions and associated states with respondents include:
1) Midwest: Iowa, Illinois, Indiana, Kansas, Ohio, Minnesota, Missouri, Wisconsin; 2) West: California, Colorado, Idaho, Nebraska, New Mexico, Utah, Washington; 3) Northeast: Massachusetts, New York, Pennsylvania; and 4) South: Florida, Georgia, South Carolina, Texas, Virginia.
The Midwest region produced 29 completed surveys, and the other three regions produced 12 each.
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RESULTS AND DISCUSSION |
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TOPABSTRACTINTRODUCTIONMATERIALS AND METHODSRESULTS AND DISCUSSIONCONCLUSIONSREFERENCES |
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Farm and Operator Characteristics
The average operation across the 65 respondents had a current inventory of more than 1200 heifers at the time of the survey (Table 1
). Because many operations kept heifers less than a year, the average operation finished nearly 1700 heifers annually. Operations ranged in size from 30 to 20,000 heifers currently on the operation. The average respondent operated 258 ha, of which 187 hectares was owned and another 75 ha rented (Table 1). Almost half of the heifer raising operations had between 250 and 1000 heifers on-farm. Large heifer operations were equally as likely to be on a relatively small land-base as they were on a large land-base. Mid-sized heifer operations were associated with large crop enterprises, whereas the large heifer operations specialized in heifer growing. On average, respondent operations had a heifer density of 9.21 heifers/ha operated with a maximum of 173 heifers/ha and a minimum of 0.56 heifers/ha.
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). Followed by the South, Midwest, and Northeast. The average heifer operation in the West region owned the majority of total land operated and rented fewer acres relative to operations in the other regions which rented more acres and were less specialized. With respect to heifer density, the average operation in the West region was more densely populated than the average operations in other regions.
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). Crop enterprises complemented the heifer growing enterprise and were the most common other farm enterprise. Many operations included other livestock enterprises. Examining the mix of existing farm enterprises across geographic regions revealed that milking herds were more common on Midwest farms than in other regions. Heifer growers in the West and Northeast regions were the most specialized in heifer growing.
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). Forty-three percent of all respondents indicated they received off-farm income. The South region respondents had the largest average percentage of income from off-farm sources (22%) and the least total income from custom heifer growing (56.5%). The Northeast region had the largest average percentage of total income derived from the heifer growing enterprise (81.2%).
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Respondents indicated many reasons for entering into custom heifer growing. The most common response was for the business opportunity (Table 5). The second most common response was to utilize forage crops grown by the operation. Using or capturing the fixed-costs on unused livestock facilities was also indicated as a common motivation for the custom heifer growing business enterprise.
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Management Practices
Examining management practices utilized provides a foundation for understanding current industry standards. The number of dairy farms that sent heifers to the grower varied widely, 83% of respondents raised heifers for more than one dairy producer, whereas the remaining 17%, 11 operations, raised heifers exclusively for a single dairy producer (Table 6). The simple average number of dairy farm clients was 5.8. Examined by region, the largest group in each geographic region was two to five dairy farm clients which characterized at least 50% of respondents in every region. One operation in the West region indicated that they raised heifers for more than 20 clients.
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Initial contact between the heifer grower and the dairy farm client occurred by many different sources. The most common method was through an acquaintance or neighbor followed in popularity by using a third party. Responding custom heifer growers were also asked to comment on the primary reason that clients sent heifers to them. Dairy farms were more likely to outsource heifer growing during herd expansion (Table 7). About 91% of dairy farms expanded their milking herd after sending heifers to the custom grower while only nine percent had not. Lack of heifer facilities, management time, and labor were the next most common reasons heifers were sent to the custom growers and all could also be related to dairy herd expansion.
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). Many operations utilized more than one type of facility. Sixty-five percent of respondents (42 of 65) indicated that they had built or purchased new facilities to raise dairy heifers. Investment in heifer growing averaged $132,617 in machinery and equipment and $259,788 in buildings and facilities. This investment averaged $731 per heifer total investment for heifer growing purposes, $287/heifer for machinery and equipment and $443/heifer for buildings and facilities.
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The heifer grower was responsible for breeding heifers on most operations. Most exceptions involved a third party responsible for breeding. With respect to breeding methods, 58% of all operations used only AI, whereas 77% used at least some AI. Thirty-six respondents indicated that at least some heifers were bred by dairy bulls, whereas eight indicated some used beef bulls. This use of bulls as a component of the breeding program, nearly 68% of operations, is higher than indicated across US dairy operations by the 2002 National Animal Health Monitoring System, 55% (USDA-APHIS, 2002).
Age at first calving determines when the heifer becomes a productive member of the milking herd. Previous studies suggest that the optimal age at first calving is at or just less than 24 mo (Hoffman and Funk, 1992; Heinrichs, 1993). Reduced age at first calving results in savings in feed costs, overhead, and crowding in heifers (Heinrichs, 1993; Tozer and Heinrichs, 2001). These costs savings are passed on to the dairy farmer in the case of custom-raised heifers. Respondents indicated that most heifers were bred initially between 13 and 15 mo. If the initial breeding was successful, age at first calving would be 22 to 24 mo. A standard goal is 24 mo for first calving and averaging that age requires that initial breeding occur earlier than 15 mo. Of the 56 respondents that answered the survey question regarding age at first breeding, only 13 indicated initial breeding occurred after 15 mo of age.
Several criteria were used to determine when the heifers were ready for breeding. The average age criterion was 13.5 mo (38 respondents). Forty respondents indicated that weight was a criterion, with an average breeding weight standard of 363.6 kg. Eighteen respondents indicated that height, was a criterion with the average height standard being 127 cm. With respect to average daily gain, most heifers above 6 mo of age were targeted for 0.8 to 0.91 kg/d.
Contract Specifications
Contracts are important to formalize expectations and arrangements between the dairy farmer and custom grower. Sixty-nine percent of respondents used some form of written contract. The majority of respondents, 85%, contracted directly with their dairy farm clients rather than using a third-party intermediary.
Many different payment schemes were utilized; sometimes several methods were used by a single heifer grower. However, just over 50% of the respondents indicated that a set daily charge per heifer per day ("daily charge" method) was the primary type of contract payment (Table 9). The second most common single methods were purchasing the heifers from the dairy farmer and later selling them back ("sell-buy back" method) and a rate based on weight gain ("gain-based" method). Combinations were also indicated by 10 farmers (15%) as the primary method to determine payment rate, but all combinations used either daily charge or sell-buy back method as part of the combination. When examining contract type across heifer size, several patterns emerge. Both sell-buy back and gain-based contracts were not used by the smallest of heifer growers, who relied almost exclusively on the daily charge method.
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Of respondents that used daily charge, the most common charge was $1.50/heifer per day and the average daily charge was $1.52/heifer. Fifty-one percent of the respondents indicated an average charge between $1.40 and $1.60/heifer per day. By age group, the average charge was $1.88/d from birth to weaning; $1.49/d from weaning to 6 mo of age; $1.50/d from 6 mo to breeding; and $1.59/d while bred. These charges reflect the fact that calves require more labor and relatively expensive milk-replacer prior to weaning and thus is the most expensive growth period in terms of average cost per day (Bernard et al., 1992; Karszes, 1994). Operations that took heifers from prior to weaning through to prefresh charged a weighted average daily charge of $1.60 per heifer. Whereas only 10 respondents indicated a gain-based charge, the range of rates was quite wide. Half of the respondents charged between $1.65 and $2.18/kg ($0.75 and $0.99/lb) of gain.
Payments were mostly received monthly (70%). Nineteen respondents, 28%, indicated that payment was received when the heifer was returned to the client. Respondents indicated multiple arrangements depending on the client.
Contracts contained performance bonus clauses in only eight instances. The most common bonus utilized was related to a target rate of gain. Responsibility for veterinary bills was shared 11% of the time (Table 10). Shipping mortality was most often the responsibility of the dairy farmer. Heifer mortality on the heifer grower operation was shared in some cases and in others depended on the length of time on the operation (or since arriving from the dairy farm).
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Considering the overall satisfaction with the contract arrangement, most custom heifer growers were "satisfied" (37% of respondents), had "above average satisfaction" (39%), or were "extremely satisfied" (21%). The remaining three respondents were "somewhat satisfied" with their contract arrangement. None of the 62 respondents to this question indicated dissatisfaction with their current contract.
Explaining Heifer Raising Charges
Of paramount importance in a contract growing arrangement are financial terms and division of responsibilities. Financial terms may be thought of as a function of the farm, operator, region, facilities, and practice characteristics. To examine the effect of these characteristics and practices, a simple regression was run with average daily charge as the dependent variable. More than half of the respondents used daily charge as the primary method to bill dairy farm clients. Several other respondents used this method in combination with other methods. In the remaining cases, the other pricing methods were converted to an average daily charge using information provided. For example, a gain-based charge was converted to an average daily charge using on average daily rate of gain information provided.
Explanatory variables of the heifer charges included region, operation size, specialization of the heifer grower operation, heifer facilities, number of clients, and a number of contract clauses such as bonuses, distribution of financial responsibilities, presence of a third party for monitoring, responsibilities, and performance clauses. Variables and regression results are in Table 11. The regression explained 60.4% of the variation in price charged.
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Specialization was measured as the percentage of income derived from the heifer-growing enterprise. Perfect specialization indicated that all income came from the heifer enterprise. Specialization was associated with higher charges with a perfectly specialized heifer operation charging $0.255 per heifer per day more, all other factors equal.
Facilities were entered as a binary variable equal to one for free stalls and zero for other facility types. Use of free stalls was associated with lower charges relative to other facilities, the most common of which were pasture and bedded pack. Free stalls were more common in the Northeast and Midwest regions, which also tended to have smaller operations both of which may contribute to the negative sign on the facilities coefficient.
Number of clients was positively related to the price charged. Each additional client was associated with a $0.15 daily charge increase. Heifer grower responsibilities were entered as a binary variable where one reflected grower responsibility and zero meant not. Grower responsibility for shipping mortality added an average of $0.249 per heifer per day. Mortality on the heifer grower operation was negatively associated with price but not at a statistically significant level.
A contract agency or third party providing the feed, similar to the arrangements on many hog production contract farms, was associated with an average charge increase of $0.239 per heifer per day. This result seems to run counter to intuition. However, this may reflect the fact that the heifer grower cannot take advantage of home-grown feed or add a profit margin to their own available feed supplies when a contract agency provides feed. Supplies were specified as medicine, such as vaccines, and semen. In cases where the farmer provided the supplies, the charges were $0.159 higher.
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CONCLUSIONS |
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TOPABSTRACTINTRODUCTIONMATERIALS AND METHODSRESULTS AND DISCUSSIONCONCLUSIONSREFERENCES |
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Received for publication December 18, 2002. Accepted for publication April 22, 2003.
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REFERENCES |
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TOPABSTRACTINTRODUCTIONMATERIALS AND METHODSRESULTS AND DISCUSSIONCONCLUSIONSREFERENCES |
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