Illini DairyNet Papers
TAKE HOME MESSAGE
- Contract heifer raising agreements must be equitable to both owner and grower.
- A written contract is a must for the protection of both parties.
- Knowing and using actual production costs will assist in more accurately determining a fair fee arrangement.
During the past few years there has been increased interest in contract heifer raising. Every dairy producer needs to rely on a good supply of well grown, genetically superior heifers to replace the culled cows or expand the current milking herd. With increasing herd sizes, greater demand for management expertise and labor needs, some herd owners are looking for ways to reduce their work load. Splitting off the heifer enterprise from the total dairy operation and arranging for custom rearing is one option producers can consider. Hiring someone to custom raise the heifers can still allow the owner to retain ownership of his genetically superior animals while transferring the labor and management to the custom grower.
CONTRACT REARING CONSIDERATIONS
When exploring the pros and cons of contract heifer raising, several considerations need to be addressed. The advantages to the owner could include less labor required, able to concentrate on milking herd management, frees up housing space to expand milking herd, and perhaps, growthier and healthier replacement heifers. Disadvantages could include loss of management control, unused facilities, possible increased cost of production, potential exposure to disease, owner/grower conflicts, and possible poorer growing replacement heifers.
A decision to contract with a grower will need to be based on sound economic reasoning. If the advantages will increase the profit potential of the milking herd enterprise and the owner is willing to give up the heifer management aspect, it can be a good management decision. It will be important to select a grower who understands growth performance expectations of dairy heifers and who will provide a professional service. Avoid growers who have overcrowded or inadequate facilities since such conditions will lead to unthrifty, poor quality replacements.
WRITTEN CONTRACT AND FEES
It is extremely important to prepare a written contract. This will be beneficial to both parties and help avoid owner/grower conflicts. The contract needs to outline the expected growth performance, the responsibilities of both owner and grower, and the fee arrangements. Heifer growth rates for large breed heifers should range from 1.6 to 1.8 pounds per day with small breed heifers achieving 1.3 to 1.4 pounds average daily gain. Accelerated weight gain that is associated with beef feedlot systems is not acceptable and damaging to the future milking ability of the heifer. Therefore, height measurements and body condition scoring should be encouraged to monitor over conditioned or under conditioned heifers. Variation in growth will occur and the owner needs to realize that the growth guidelines are only a guideline. Suggested growth objectives for dairy heifers are listed in Table 1.
The responsibilities of both owner and grower also need to be written into the contract. These could include such things as breeding cost and sire selection, ration formulation, routine and unexpected veterinary care, vaccination program, insurance, and death losses. Both the owner and grower need to discuss the various responsibilities expected and come to an agreement. Table 2 lists possible considerations that need to be reviewed.
The cost of contract raising heifers will primarily be based on the responsibilities of the contract and the size of the heifer. There are several ways to arrive at a fair fee arrangement. These include payment based on per pound of gain, per head daily charge, feed plus yardage, and option to purchase.
Payments based on pounds of body weight gain during the contract period are usually preferred. Cattle are weighed in and weighed out. The predetermined price per pound of gain is simply calculated and the total price is known. It is suggested to pay a portion of the total price on a monthly basis to provide steady income for the grower and avoid putting a large cost burden on the owner at the end of the contract. Then, at the end of the growing period, the dollar difference based on out weight is calculated for the final payment. With the per pound fee arrangement, it is very important to monitor suggested dairy heifer growth and perhaps establish a penalty for over conditioned heifers.
Daily head charge is a fixed charge per day per head and has the advantage of simple billing and easy for planning cash flow. However, if growth rates are slow, the owner could end up paying more due to the extended growing days needed to reach breeding and/or calving weights. The owner will need to specify expected growth rates to avoid this conflict.
Feed plus yardage requires the owner to cover all feed costs with a daily yardage cost to cover labor, facilities, and grower operating costs. The risk of feed price changes is borne by the owner. Feed plus yardage reduces any possible conflicts between the grower and owner on the rate of gain. The owner also has the sole decision in determining the nutrient specifications of the ration.
Option to purchase allows the owner to sell the replacement heifer to the grower with the reserved right to purchase her back at the current or pre-determined price. This method shifts most of the risk to the grower and the owner frees up money invested in replacement animals for other uses. In addition, the grower's investment costs in animals can be substantial and create uneven income flows, at least until well established with regular sales.
The method of determining the cost for any of the replacement contract arrangements will need to be based on the total cost of raising dairy heifers. In order to do this the owner and grower need to know their production costs. An example of heifer raising costs from birth to 24 months is listed in Table 3. This table gives suggested values and should not be a replacement for current producer records that will more accurately represent the owner and grower cost situation.
Contract heifer raising has to be fair and economically sound for both the owner and grower. If successful, it frees up the dairy herd owner to concentrate on other management and labor in his milking enterprise and provides a business opportunity for the custom grower. Sound business management must take place in the planning and executing of contract heifer raising.
Table 1. Heifer Growth Objectives
|Holstein & Brown Swiss||Ayrshire & Guernsey||Jersey|
|Age (Months)||Weight1 (Lbs)||Height2 (Inches)||Weight1 (Lbs)||Height2 (Inches)||Weight1 (Lbs)||Height2 (Inches)|
|Source: Raising Dairy Replacements, NCR 205.|
Table 2. List of Possible Responsibilities in a Contract Raising.
|Semen & Semen Cost||Grain|
|Sire Selection||Protein Supplement|
|Heat Detection Aids||Mineral|
|Heat Detection||Feed Additives|
|Emergency Health Care||Power/fuel|
|External Parasite Control||Part-time Labor|
|Maintenance Growth Monitoring|
|Electric & Water|
Source: P. C. Hoffman, University of Wisconsin
Table 3. An example of heifer-raising costs (0 to 24 months)
|Milk Replacer||$70.00/cwt||40.0 lbs||$28.00|
|Vet & Med||$25.00/hfr||1.0/hfr||$25.00|
|Power & Fuel||$22.00/hfr||1.0/hfr||$22.00|
|Labor & Management|