Families across the country are sitting around the table, pencil in hand, trying to figure out how to gain some liquidity for their businesses. What if the answer was raising fewer heifers?
“Right-sizing heifer inventories” is the catch phrase that’s been buzzing around the dairy industry for the past few years as the number of cows milked in the U.S. continues to increase. But freeing up your balance sheet by reducing your cost of production (which includes heifer raising costs) can really help your finances, according to Jim Moriarty, a dairy specialist with Compeer Financial.
“Anything we can do to get some liquidity back on the balance sheet is really helpful,” Moriarty says.
REDUCE HEIFER NUMBERS
Heifers consume a lot of cash. In fact, replacement costs encompass roughly 10% of a farm’s total cost of production. That’s why it makes sense to consider strategies to reduce the number of heifers a dairy is raising, Moriarty says.
There are two ways to think about heifers: in short-term and long-term needs, says Jason Karszes from Cornell’s Pro Dairy.
“Do you need to get rid of heifers right now? That’s the short-term consideration,” he says. While few industry experts are advising producers to sell heifers given they are currently worth a decades-low value, Karszes says at some point farmers have to stop the bleeding.
“Why put any more money in and lose more, we’ll just take our losses now,” he says. “There are some circumstances on individual farms where it does make sense to sell them now.”
If you keep raising your excess heifers, will you get the additional money you’ve invested back out of them?
“Just because we have a heifer doesn’t mean we have to raise it,” he says.
For the long-term, figure out what the right number of heifers in inventory is for your farm, Karszes advises.
HOW MANY DO YOU NEED?
First, determine how many heifers you actually need to meet your needs. What’s your cull rate (beef and died)? What’s the non-completion rate of your heifer system? What is the average calving age of the replacements? These are all the questions Karszes encourages farmers to consider.
“For example, if I have 1,000 cows, x is how many heifers I need of all sizes running around the farm to maintain herd size,” he explains.
Next, consider how many heifers your system can raise.
“How many heifers can you raise and actually do a quality job,” Karszes asks. It doesn’t matter how many you raise if they’re not good quality, he says. On the other hand, if your system is more efficient with more heifers in it than you need, it could make sense to raise the extra heifers to sell.
“For example, if I need 700 heifers but my system really efficiently raises 750, it might make sense to raise an extra 50 to sell,” Karszes explains. “However, if I need 700 and my system can only raise 600, does it make sense to overcrowd them and raise poor-quality heifers or is it better to maybe board or buy them?”
That quality component is a difficult factor to measure, Karszes says, adding farms usually know they’re in trouble after the fact.
Once you figure out how many heifers you need, it’s time to consider how to maintain that number.
“Do I not breed for as many heifers hitting the ground? Do I sell them when they hit the ground? What are the different strategies to have fewer heifer calves enter your system?” Karszes questions.