Decision Tools to make Dairies Profitable Galligan, Ferguson, Munson, Baker, Rhodes PA Producers

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Decision Tools to make Dairies ProfitableGallig
an, Ferguson, Munson, Baker, RhodesPA Producers

• University of Pennsylvania
• School of Veterinary Medicine
• Section of Animal Production Systems

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My Talk Today

• Look at the cow/herd as an investment opportunity
  (Total value of a COW over time NPV)
• Define opportunity areas to improve the
  investment (Factors that influence that Value)
• Suggest available tools
• Future tools

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Our WEB PAGE

• Productiontools.org

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Levels of decision Making
Cow Level
How do I make her at better Investment ?

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Levels of decision Making
Herd Level

Which are my best investments ?
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Biological Life Cycle of a Cow
Conception
Heifer Rearing
Calving
Milk, lb
Gestation
Gestation
Birth
Breeding
Day in
Milk
Research constantly seeking to Alter the biology
in a favorable manner Nutrition
Programs Reproduction Programs Treatment
Protocols Producers and Consultants must be
aware the emerging advances today for they
become tomorrows opportunities
Bred
Replacement
Sold
Culling
Dry Period
Harvest Body
Weight
Start Next Lactation
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Your Business

• You are in the business of understanding the
  biology of milk production and using that
  understanding to make a profit.

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General Concept of Production Medicine
New Profit Level
Identify a new opportunities new understanding
of biology
Current Profit Level
Broken Biology
Correct the Problem
Develop a problem
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Build an InvestmentModel of the cowto calculate
its value(Net Present Value)


Functions are in BASEcow Excel Addin
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Cash Flows of a Cows LifeMonthly and Cumulative
How do I increase the net positive area/unit time
?
Affect Milk yield ?
Alter time and /d
Sire Selection
Longevity ?
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Cost and Revenue Attributes

• Revenue
• Monthly Milk, Calf Income (CI), Cull value (End)
• Cost
• Upfront single investments/animal
• Pay as you go cost for the life of the animal
• Cost per lactation
• Cost that are a function of milk production level
• Cost associated with financing

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The Cow NPV Model

Total Milking Herd Lifespan (1/annual cull rate)
years
Age at 1st Calving
First Calving
Birth
CI
CI
Total Cost
Milk Calves Feed cost Breeding Cost Lactation
Cost
Milk Calves Feed cost Breeding Cost Lactation
Cost Cull Value
Milk Calves Feed cost Breeding Cost Lactation
Cost
Sum of Revenues-Cost Total Investment Value
NPV calculated at 7 annual interest value of
the investment Annuity value - /year (equivalent
value to the NPV)
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Basic Structure

• Annual Cull rate determines how long the average
  cow stays in the herd.
• of Calvings within this time period is a
  function of the Reproduction Efficiency

33 Cull rate/year ? 1/.33 3 years in
the herd
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Basic Inputs

• Heifer cost at 24 months 1500
• Milk production PA milk Curves

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Milk Production Used in the Model
25,241
24,026
20,775
Lactation curves used in the model were developed
from PA production data
BaseCow Addin
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BaseCow Addin

• Addin to Excel with Production Medicine Functions
• 150 functions
• Free Productiontools.org

BaseCow Addin
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Function DMI
Function Name
Function Arguments
DMI (Body weight, Milk, Status) DMI (1400, 80,
L) 47.4 lbs
call name Control A - will give the
information box call name Control Shift A
will give argument list
Web site Productiontools.org
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Basic Inputs

• Heifer cost at 24 months 1500
• Milk production PA milk Curves
• Calving interval 13 months
• of Lactation 2.8
• Annual cull rate of 33
• Cull Value of 500/cow

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Basic Inputs

• Milk Price 12.00/cwt
• Marginal Feed Cost/lb of milk .03/lb
• Cow daily maintenance feed cost 1.50
• Dry Period Days 60 _at_ 2.00/d
• Calf Value 100
• Other lactation Cost 300 (breeding, BST, etc.)

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Basic Inputs

• Debt/cow 2,000
• Terms 10 year
• Rate 7/year
• 23.22/month/cow

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Basic inputs to the model
Milk 25,241 lb Maintenance /d 1.50 Milk Cost
.03/lb Milk Price 12.00
Milk 24,036 lb Maintenance /d 1.50 Milk Cost
.03/lb Milk Price 12.00 CI 13 months
Milk 20,775 lb Maintenance /d 1.50 Milk Cost
.03/lb Milk Price 12.00 CI 13 months
Culled 500
- 1500 Over 24 months
Dry Days 60 Cost/d 2.00
Dry Days 60 Cost/d 2.00
Calf value 100
Calf value 100
Calf value 100
300 lactation cost
300 lactation cost
300 lactation cost
Assume a 33 culling rate
All the inputs can be varied
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Output at BASE Levels

• Sum all Revenues and Cost over 5 year investment
  period (without labor)

1,485/cow life

534/year of cow Lactation life
347/year of cow life
How do these numbers change as we alter inputs ?
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Replacement Heifers
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Animal Replacement

• Goal is to have quality heifers calving at
• appropriate weight and size at the cheapest
  cost.
• Part of the upfront investment
• Lower cost/day
• Lower of days
• Lower the heifer herd size and yet still meet
  herd requirements

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Current Situation in the U.S.
25.4 mos.

• Avg. Age at 1st Calving
• Overall Average 25.4 mos.
• 24.9 of the herds 27 mos.

Dairy 2002, NAHMS, Dec., 2002
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Heifer Cost Efficiency
Total Cost of the heifer
Additional of heifers reared
Inefficient ration /d
Extended Time to First Calving
Cheapest Ration /d
Heifer Rearing Cost Optimal
How long age at first calving
Annual flow of heifers calving in the herd must
equal the cull rate else herd will shrink!
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Application of Hoffman Cost
Heifer Cost
Cost continue if Open 50 - 60/month
Cost from Hoffman, 1996
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Effect of Heifer Cost on Total Cow Investment
Value

As cost of a heifer increases by 100 Cow NPV
decrease by about 5
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Part II of Cost Reduction Basis

• How many heifers does a herd need to raise to
  maintain herd size?
• What is the annual demand for heifers?

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How many heifers must be raised to maintain a 100
cow herd?
Dairy Herd
30 cows leave/year
30 cull rate
Heifer Herd
30 Heifers
30 Heifers
30 replacements available
Year 1
Year 2
An assembly line
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Effect of Heifer Mortality
Dairy Herd
30 cows leave/year
30 cull rate
33.5Heifers
33.5 Heifers
Heifer Herd
30 replacements available
Year 1
Year 2
If 10 of heifers die, need to raise 67 heifers
(6.7 extra heifers) to ensure 30 are
available/year.
Formula 100 cows x cull x 2 / (1-Heifer
Mortality)
67 heifers needed if calving at 24 months
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Extending Age at First Calving
Dairy Herd
30 cows leave/year
30 cull rate
Heifer Herd
33.5 Heifers
33.5 Heifers
16.5
30 replacements available
Year 1
Year 2
6 mo.
If increase months to rearing, need more heifers
to ensure 30 per year
100 cows x cull x 2 / (1-Heifer Mortality) x Age
1st Calving/24
67 X 30/24 83 heifers!!!!
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Size of the Heifer Herd for a herd of 100 cows
For each month of extended age at first Calving
The size of the heifer herd increases By
4.7/month
BaseCow Addin
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Heifer herd size as a Percent of herd size at 24
months AFC and 30 cull
BaseCow Addin
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Total Cost of Not Meeting Goal
Basecow Function Heifcost
BaseCow Addin
Current Age at first Calving
Goal Age
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How can you Increase your Cow Investment Value?

• Ensure that daily weight gains are 1.8 lbs or
  greater and that you have a breeding program that
  works.
• Drives onset of puberty
• Drives breeding
• Drives age at first calving

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Penn State Holstein Weight Chart
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National Dairy Heifer Evaluation Project
National Percentiles
Goal
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Weight Gain Function in BASECOW
GAIN(weights, Ages)
Daily gain
BaseCow Addin
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You should weight and analyze Your heifer Weight
gains At least once a year
Production Medicine Course (2004)
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Milk Production
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Milk Production
25,241
24,026
20,775
BaseCow Addin
Many factors affecting its shape - Lactation
number - Ration, feed management (DMI),
reproduction status
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Effect of changing the Milk production in 1st
lactation Cows

For each 1 lb increase in daily milk yield of
1st lactation animals cow value increases 64.83
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Value per year (Annuity Value)
For each 1 lbs increase in average milk/d of 1st
lactation cows, an additional 15/year is
generated/cow over her entire life
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Why is increased Milk Production Profitable ?

• The variable (marginal) cost of milk production
  is relatively cheap
• Most of the other cost associated with production
  are fixed they will be paid irrespective of
  the level of production

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Marginal Cost of Production

• If my cow is going to make 1 more lb of milk, how
  much does it cost to produce?

71 lbs of milk Today
70 lbs of milk Today
?
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Average cost of production milk 70 lb/d
Is this my marginal cost of Production ?
Total Cost 8.57/cow Average Cost cwt
12/cwt Average cost .12/lb produced
NO!!! Has all fixed cost of production that
will be paid regardless of Production level.
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Average cost of production milk 70 lb/d
FEED COST
AVERAGE Feed cost/cow 3.60
Feed /lb of milk 3.60/70 .05 5.00/cwt
of milk
Is this my marginal cost of Production ?
NO !!! It too has the fixed cost Of cow
Maintenance 1.50
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Marginal Cost of Making Milk The Cow has fixed
Cost as well
71 lbs of milk
70 lbs of milk
Maintenance 1.50
1.50 FIXED Variable 2.10
2.13
It only cost .03 to produce the last lb of
milk!!! I get .09/ lb in revenue!!! (12/cwt
milk)
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100 Rations , FCM (4)Linear Cost
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What is the Marginal Cost of Milk on Your Farm?
Ration cost of Average Cow -
Ration cost of Dry Cow
BaseCow Addin
Average Milk Production Level (lbs)
.03/ lb of milk
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Milk Production

• Most important revenue source (90 of the total
  revenue (milk, calves, cull))
• Marginal cost of production is relatively cheap
• Shape characteristics (start-up, assent, peak,
  decline)
• Milk Composition

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Production Monitor
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Production Analysis Program
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Dairy Nutrition
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Importance of Nutrition

• Next to labor one of the largest cost centers
• Direct influence on production, reproduction,
  metabolic diseases

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Goals

• Select cost efficient ingredients (Substitution
  values, LP outputs, Sensitivity Analysis for non
  linear)
• Use the latest concepts in nutritional biology to
  identify opportunities to improve production

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Function FeedCost48
SBM 48 cost 200/ton, Shelled Corn 100/ton A
feed with 20 CP and NE .78/lb cost
167/ton Should I buy it?
BaseCow Addin
No, 167 ( the cost of the feed) is more then
what a mix of soybean meal and corn would be.
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• Nutritional Services -
• Ration Savings in Feed Cost

Projected Feed Savings
Number of Farms
0-5
0
6-10
6
11-15
3
16-20
4
21-25
2
Mean 14.4 15
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• Weekly Feed Cost

Feed Cost Savings 1,600 / week
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Routine Ration Formulation
Ration
Feed Analysis Data Nutrient Attributes
Corn Silage 40 lbs. Haylage 30 SBM
4 Blood Meal .1 Corn
20 Distillers 3 Cotton
Seed 3
Optimization Linear Programming
CPM Dairy
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Cornell Net Carbohydrate and Protein System
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• Developed to more accurately define
• rumen bacterial and whole animal requirements
• to assess feed utilization
• to predict production responses
• Empirical and mechanistic approaches that
  describe
• feed intake
• ruminal fermentation of protein and carbohydrate
• intestinal digestion and absorption
• excretion
• heat production
• utilization of nutrients for maintenance, growth,
  lactation and pregnancy

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Problem Herd

• Low production (30 kg/d)
• Early lactation cows
• frequently went off feed
• had diarrhea
• Feces contained undigested corn believed to be
  high moisture corn

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Objectives in Ration Reformulation

• Provide less NFC without compromising total
  carbohydrate fermentability
• Increase peNDF
• Correct the deficiency of metabolizable protein
• Improve amino acid balance

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Short-term Results

• After one week on the new high production ration
• and a similarly formulated low production ration
• Total herd milk production was 4 kg/d higher
• Cud chewing increased
• Manure consistency improved
• Off-feed problems were dramatically reduced

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Additional Changes

• Two weeks after the ration change, manure still
  contained excessive undigested high moisture corn
  
• Grinding the high moisture corn through a 0.635
  cm screen reduced corn in feces
• Milk production increased another 2 kg/d

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Long-term Results

• For the next 12 months, average milk production
• for the total herd was 36 to 38 kg/d

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Reproduction
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Which Bulls should I Select? How often should I
use them ?
Use Linear Programming To optimally select
bulls Given a set of genetic goals
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Semen Cost/ Year400 cow Herd
Instituted LP Bull Selection
13,000 Less in Expense
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How you can you look at Bull Selection Efficiency
?

• Excel LP Template solver
• Dairy Comp 305

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Dairy Reproduction
Rate of Pregnancy of cows getting pregnant
every 21 days
Breed- Preg-Check Rebreed/Cull
Pregnant Cow
Open Cow
Cull Cow
Open at pregnancy Check
PR Function of Heat Detection, Conception,
Pregnancy Dx, Rebreed Program..
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Breeding Objectives

• Ensure First Breeding
• - pre-synchronization programs
• - synchronization programs
• Ensure Rebreeding of failures
• - post breeding synchronization (initiate
  ov-synch before pregnancy status is known)
• - Early pregnancy diagnosis
• - Complete Ov-synch
• Total Systematic Breeding Programs

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A Total Systematic Breeding Program
Pre-staging
Systematic Breeding
Ov synch Program
PG
PG
GnRH
1 week
PG
2 weeks
2 weeks
GnRH Breed
Start Day
2 days
Breed if seen in heat
Rebreeding Strategy
If open
Pregnancy Check
7 days
GnRH
Pregnant
1) Are you on a Systematic Breeding Program ? 2)
If you are, are you in compliance with it ?
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RepMON
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A detailed evaluation of factors influencing PR
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Splitting Heat Detection by Lactation, by DIM
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Herd Participating in the Pilot Program
PR 7
PR 10.3
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Remaining Not 1st bred
Bred by observing Heats on PG
Bred by Timed insemination (Ovsynch)
Kaplan-Meirer (product limit)
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Day of 1st breeding vs Fresh Date
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Remaining Open
Kaplan-Meirer (product limit)
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Economic Value of Breeding Programs at
baseline HDR 40 and CR 40
Diff the potential dollars/cow/year above
baseline Note Rate of return should not be used
to rank programs
Base HDR 40 and CR 40
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Effect of Extended Lactation on Average Milk/d
CI 12, Average 83.1
CI 13, Average 80.1
Pa milk production curves
(3.1 difference in average milk 10,000)
(100 milking cows x 3.1 x 305 x (14-3))
10,400
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Effect of CI on Cow Value

Slope 3.46/day open
Calving Interval
Over Five year Life Span
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Effect of CI on Cow Value

Slope 3.93/day open
Calving Interval
Over 6 year Life Span
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Distribution of ME milk for a herd of 248 cow
Mean Daily Milk Production 88 lbs/d
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Distribution of ME milk for a herd of 248 cow
Mean Daily Milk Production 88 lbs/d
92 lbs/d
Remove 15 of Cows Voluntarily
High reproductive efficiency has this opportunity
at the herd level.
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Culling !!!
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Culling

• It happens for good and bad
• Too Early

Cow leaves before the optimal time -
has a catastrophic health event affecting
production, longevity etc - fails to get
pregnant
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Culling

• It happens for good and bad
• Too Early
• Too Late

Cow leaves before the optimal time -
has a catastrophic health event affecting
production, longevity etc - fails to get
pregnant
Much Harder to See It is a Lost Opportunity
Cow leaves after the optimal time -
producer could have made a better investment
in a replacement animal
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Levels of decision Making
Which are my best investments ?
Herd Level

?
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Levels of decision Making
Which are my best investments ?
Herd Level

?
Value
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Culling Model
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Future Value / cow/ month
Calving
Calving
Calving
Dry
Cull if no other Opportunity
Cull
Birth
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View of RPO Data
Value of keeping the cow
Data from Herd
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Concepts of Breed Able SpaceWhich Cows Get
Pregnant
Replacement A better Investment
Average cow
Breed Able Space
A Better Cow
Breed Able Space
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Time to when the RPO Got a lot of high RPO cows pregnant EARLY
Have a few cows that are eminent culls -RPO is
about to go to zero
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Got a lot of cows pregnant at the last moment
Have many cows that are eminent culls -RPO is
about to go to zero
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Dimensions of Reproduction inefficiency

• Semen Cost
• Average milk/d effects from extended lactation
• Premature removal before optimal time of culling
• Decrease the ability to participate in production
  based culling

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Debt Structure
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2000/cow debt Total Investment Value of the Cow
Term Years
Annual Interest
Milk debt/cow
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Daily Milk to PAY Debt
Debt/cow
Milk Price Per CWT
BaseCow Addin
A debt of 2000/cow (5 at 5 years) requires 14
lbs of daily milk production
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Products To Use
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Programs to Evaluate Products
Type I and II Error
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Management with Discretion
Active Management Only continues if good
response
Break-even

Good Response
Bad Response
Information over time
Active management decisions can make the response
asymmetrical
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How we look at the Problem?

• Tools
• - REPmon
• BaseCow
• CPM
• Production Analysis
• - Product Selection