Updated Economic Index Promotes Profitability
By Angie Coburn, Associate Vice President - Dairy Genetics, Genex 

Striving to be profitable... it's any dairy producer's goal. In recent times, it has required hard work, thoughtful control of expenses and creative use of inputs. Often overlooked is the way genetics impacts farm profitability. The genetic level of your service sires can help determine how efficient and profitable you may be. I often repeat a practical statement made many years ago by Bennett Cassel, Virginia Tech Extension Dairy Scientist; "The one purpose of a breeding program is to increase the frequency of genes that contribute to a profitable herd."

Many factors influence income and expenses on the farm. Since 1994, the United States Department of Agriculture (USDA) has evaluated the measurable factors of farm profitability and published the economically-based genetic selection index, Lifetime Net Merit (LNM).

The goal of LNM is to maximize a cows' profit potential through genetic selection. The index weights 13 individual traits relative to their overall lifetime impact on the profit of a dairy herd. The relative trait weightings highlighted in the pie chart are derived by using industry estimates of current and future economic statistics related to milk income, feed costs, dairy replacements, health and veterinary care, and breeding expenses. Using this approach, LNM ranks bulls based on their ability to improve net return to your dairy.

Table 1 displays the changes to the USDA economic statistics since the 2006 revision to LNM. The current and future estimates of farm income and expenses have changed significantly. Future estimates of milk value are fortunately higher than the most recent year. However, feed costs have risen to 41 percent of the milk price. While the price of corn and soy may decrease slightly from today's value, future trends remain higher than five years ago. Additionally, fuel costs have increased milk hauling deductions. The cost to raise a replacement is also greater, mostly due to feed expenses. Furthermore, the USDA has applied a more accurate estimate of the value of a heifer calf and somatic cell premiums included in the milk check.

Table 1. Changes in USDA Economic Statistics.

The increased rearing costs are, of course, directly tied to higher feed expenses. Ultimately by improving cow reproductive efficiency, cow longevity and calving ability, there is greater potential for higher net margins on farms that can reduce involuntary culling.

Increased fuel price similarly reduces the margin on a hundredweight of milk. Additionally, the ratio of milk pounds to fat and protein allows for dairy producers to breed for higher component milk that fits the U.S. utilization statistics for cheese, fluid milk and other dairy product production.

Three Indexes for Optimal Results

The USDA also publishes two profit indexes specific for cheese and fluid milk processing markets, simply named Cheese Merit (CM) and Fluid Merit (FM). Table 2 outlines the relative weight of each trait in the indexes which differs slightly based on the value of fat and protein and as a result of how the traits are correlated to one another.

Table 2. Trait Weightings for Each USDA Profit Index.

For example, greater value is given to protein in the production of cheese. The need to reduce the water carrier in milk is more optimal. Because lower milk pounds are related positively to cow health and conformation, there is a lower net weighting for Productive Life, Daughter Pregnancy Rate (DPR) and the other various traits. The expected genetic progress remains the same for these traits. For fluid milk markets, protein receives little value in the milk check. High quality milk is still required, but lower total somatic cell premiums are generally reflected in the processor payments.

For dairy producers paid greater than $2.65 per pound of protein, CM will provide the greatest net profit. FM is more suitable when paid less than $1.35 per pound of protein. LNM is the optimum selection index for the majority of U.S. dairy producers.

Using LNM to choose service sires provides opportunity for progress in all traits of priority. The expected genetic trend per decade is shown in Table 3. Even with reduced weighting on production, significant progress will result for Milk, Fat and Protein. Using LNM will reverse the trend for DPR and allow dairy producers to make significant gains in reproductive efficiency. Body size should stabilize to reflect a 57- to 58-inch cow as feed efficient, healthy and of optimum size for parlor and housing conditions.

Table 3. Expected Genetic Gain Per Decade.

The three USDA indexes are equally applicable to all dairy breeds. Because there are slight differences in the type and calving traits summarized, each dairy breed has its individual LNM formula calculation and relative trait weightings. Although, separate breed genetic base levels result in individualized PTA gain per decade, the overall genetic trend for each trait should be similar.

At Genex, we've always strived to breed for a profitable cow. Simply stated, Genex procurement programs focus on cows that are healthy, long-lived, with correct udders and feet & legs. Our selection of bulls and cows for contract matings is designed to be diverse in pedigree, represent a variety of production levels and be size neutral. The common theme among Genex sires are improving traits that contribute to a profitable herd.