Economics

They are sensitive to feed deficits and need average growth rates of 500grams/day or more to meet typical New Zealand liveweight targets. When making heifer grazing decisions and completing a grazing contract there are many economic factors to be considered.

There are four ways to analyse the economics of heifer grazing:

1. Gross margin comparison to other enterprises that could be run on the land
2. The revenue foregone by keeping dairy heifers on the milking platform and reducing milk production
3. Cost to lifetime productivity if heifers miss liveweight targets
4. Feed requirements and seasonal feed value

Heifer Grazing Pricing Guideline

Download the Heifer Grazing Pricing Guideline calculator, which outlines fair pricing for dairy heifer grazing. 

The model identifies a heifer grazing rate matched to a targeted gross margin (GM) per hectare based on:

• Number of stock units carried per hectare
• Expected heifer liveweight gain
• Other expenses associated with changing in enterprises

Heifer grazing pricing guideline calculator

Heifer Grazing Enterprise Comparison

The Heifer Grazing Enterprise Comparison calculator is a simple economic comparison for the return on feed per kilo of dry matter grown on farm. Each grazing enterprise/stock class has individual economic factors to be considered when evaluating their returns. The outputs can be used to identify which grazing enterprise or mix of enterprises might be most profitable for your farm based on current or potential farm performance.  

Heifer grazing enterprise comparison calculator

• Other considerations when comparing grazing enterprises

  • Do you want the extra responsibility of communicating and working with stock owners that dairy heifers requires?
  • Which grazing enterprise or mix of grazing enterprises best match the annual feed flow/supply on the farm through the year?
  • Do you have the free capital to purchase stock required for red meat enterprises?
  • What is the security of the market for the chosen enterprise - either red meat or access to grazing dairy heifers on contract?
  • What is the available labour on farm and how does it match the requirements of the different grazing enterprises?
  • Which grazing enterprises does the on farm infrastructure suit?
  • Which grazing enterprises do you enjoy managing and working with?
  • What are the skills required in growing young stock, do you have them or are you interested in building new skills?
  • Will dairy heifers add complexity to the farm system? Are you interested in managing that?

Contract grazing? What fee method are you using?

There are many grazing fee options available. It is important that both parties agree that the fee outlined in the grazing contract is fair. Each grazing fee method has an element of risk for someone in the grazing relationship.

• Dollar per head per week

  Flat rates are the simplest method for payment.  Budgeting is straightforward: the grazier has a fixed monthly income while the stock owner has a fixed charge that could be put on automatic payment.  The downside is that there is no reward or penalty for performance or incentive for improvement.

  Example of how it is calculated:  Grazing fee = $10/head/week over a 52 week period the cost would be $520/animal

• Dollar per kilo of liveweight gain

  This method directly rewards weight gained during the grazing contract.  The risk to the grazier is that cost of the weight gain exceeds the weight payment or it may be expensive to maintain stock weight during the season (drought, flood, winter) without weight gain. Budgeting on the final income/cost is an unknown for both parties. Typically, the stock owner will pay a weekly dollar per head advance rate with an adjustment for liveweight gain based on dollar per kilo weight gain made quarterly or at the end of the grazing term.

  Example calculations:

  Example 1:

  Stock owner and grazier agree on $2.15 per kg Lwt gain during the grazing term and the stock owner will pay $8/head/week in an advance payment, or $416/head over 52 week grazing term.

  If heifers arrive at the grazier weighing 190kg on the 1 May and are returned to the stock owner on 30 May weighing 420kg, the weight gain over the term was 230kg. 

  230kg x $2.15 = $494.50/head for weight gained at grazing minus $416 of the advance payment, the stock owner would pay the difference of $78.50/head at the end of the grazing term.  Alternatively, the adjustment could occur every quarter or after every weighing.

  Example 2:

  Stock owner and grazier agree on $2.15 per kg Lwt gain during the grazing term and the stock owner will pay $8/head/week in an advance payment, or $416/head over 52 week grazing term.

  If heifers arrive at the grazier weighing 190kg on the 1 May and are returned to the stock owner on 30 May weighing 370kg, the weight gain over the term was 180kg. 

  180kg x $2.15 = $387/head for weight gained at grazing, with an advance of $416, the grazier would reimburse the stock owner $29/head at the end of the grazing term.

• Base rate with performance bonus

  The base rate with a performance bonus option seeks to capture the benefits of the standard weekly rate in terms of security for the grazier along with motivation or reward for stock growth similar to $/kg Lwt gain. The bonus is paid out by meeting or exceeding the set target at the end of the grazing term. It can also be broken up over quarters to reward meeting targets throughout the grazing term.

  Example:

  The stock owner and grazier agree that the grazing rate is $9/head/week over a 52 week term. The targeted weight at the end of the grazing term is 400kg, for all the animals that meet or exceed the 400kg threshold there is a bonus payment of $25/head. If 80 out of 100 animals reach the 400kg then the bonus payment would be 80 animals x $25/hd bonus = $2,000 that the stock owner owes the grazier.

  Alternatively

  The performance payment can be allocated on kilo of liveweight basis on an individual or mob level.

  Example:

  The stock owner and grazier agree that the grazing rate is $9/head/week over a 52 week term for 100 animals. The targeted weight at the end of the grazing term is 400kg, a bonus payment of $1.25kg Lwt is paid for every kilo that the mob average exceeds the target.

  If the final average weight of the mob is 415kg, then 15kg is eligible for the performance payment. The bonus would be calculated at $1.25kg Lwt x 15kg = $18.75 x 100 animals = $1,800 bonus payment for the mob.

  Alternatively, the performance payment could be distributed times the number of animals that meet or exceed the target weight. If 80 out of 100 animals achieved the target weight then the bonus would be calculated $18.75 x 80 animals = $1,500 bonus is due the grazier.

• Cents per kilo of DM eaten

  Cents per kilo of DM eaten is based on the estimated feed intake of the animal during the grazing term from the arrival and exit weight.  Feed is valued at cents per kg of dry matter and the stock owner is charged for estimated feed eaten.  Feed management software or a spreadsheet is necessary to estimate feed intakes based on liveweight gain. This method typically has a payment system similar to kilo of liveweight gain with an advance payment and an adjustment at the end of the grazing term.

  Example:

  The stock owner and grazier agree that feed eaten will be paid at 21 cents per kg dry matter.  Stock arrive at 3 months of age at 100kg and exit at 22 months of age at 450kg: feed eaten estimates are 3,930kgDM x 21 cents = $786 per head over the grazing term.

• Grazing company specific method

  Each grazing company will have their own methods for calculating grazing fees that may include: penalties, bonuses, seasonal feed supply, drought declaration, weighing, animal health insurance or service bulls.  All grazing company fees will include their administration and management costs. 

  A third party should add measurable value for the service they provide over a self-sourced and a self-managed grazing relationship.  If grazing companies are involved then sourcing grazing, animals meeting targets, resolving disagreements, timely action, proactive monitoring should be better and easier than doing the job yourself.