What are economic values?
Economic values are an estimate of the profit gained from a range of traits that contribute to production, product quality and animal fitness. These values become the weighting factors used to calculate Breeding Worth (BW) for all dairy cattle. BW is the industry index which ranks cows and bulls on their ability to meet New Zealand’s national breeding objective: to identify animals whose progeny will be the most efficient converters of feed into farmer profit.
Economic values are calculated annually for milk fat, milk protein, milk volume, liveweight, fertility, residual survival, somatic cell count (SCC) and body condition score (BCS).
How are economic values calculated and why do they change?
Economic values are recalculated every year with input from several organisations, including Fonterra, DairyNZ and meat processors. These revised economic values become the weighting factors used to produce the BW index in February each year.
They are calculated as ‘profit per unit’, (e.g. the profit gained from one additional kilogram (kg) of protein). These calculations incorporate major expense and revenue streams for an average New Zealand farm. On-farm expenses and revenues are largely dependent on market conditions, which can shift dramatically over time. Annual updates of BW ensure farmers have the most up-to-date and relevant information available to inform their breeding decisions.
Economic values – factors and effects
1. Milk fat, milk protein and milk volume
These are calculated using a five-year rolling average of the milk solids, volume charge and value component ratio. This rolling average includes three historic, one current and one forecast year. The value component ratio is used to partition the milksolids price into a value for milk fat and a value for milk protein. To calculate the economic value of specific milk components, we account for:
- the dollar value of milk components
- the amount of energy required to produce each milk component
- the reduction in stocking rate required to accommodate the extra energy/feed a cow requires to produce additional milk components.
Liveweight differences in cows can affect their maintenance requirements, feed costs, value as a cull cow and the value of their calves. The liveweight economic value accounts for:
- cow maintenance requirements – increasing liveweight can lead to higher annual maintenance feed requirements for the cow
- heifer replacement feed costs – feed requirements are higher for maintaining and growing larger replacements
- cull cow value – heavier cows have more value as culls
- surplus calf value – increasing cow liveweight increases the size (and value) of surplus calves produced.
3. Somatic cell count
Differences in SCC can have a significant economic effect. The economic value for SCC accounts for:
- survival – cows with low SCC will survive longer in the herd
- price penalties on milk supplied – low-SCC cows help keep the bulk SCC down, which avoids penalties via grades from milk processors
- mastitis treatment costs – low-SCC cows have fewer cases of clinical mastitis.
The economic value for fertility includes value gained through increased survival and value gained through earlier calving dates (i.e. longer lactations). The economic value accounts for:
- survival – strong fertility leads to high survivability for early-calving cows, as they have more chance to get in calf the following season (and therefore won’t be culled)
- herd calving distribution – cows with strong fertility contribute a much tighter pattern of calving across the herd, and they themselves generally have longer lactations. This value is offset slightly by the cost of increased feed demand in early spring.
5. Residual survival
The economic value for residual survival recognises that animals with better longevity will reduce the requirement for replacement heifers. The economic value accounts for:
- heifer replacements – a herd with higher survival requires fewer replacements. This is offset slightly by the loss of cull cow income and reduced rates of genetic gain
- costs and revenues per lactation – cows of different ages differ in their contribution to herd profitability. The proportion of mature cows in a herd will impact profitability.
6. Body condition score
The economic value for BCS represents the improved profitability of an animal that can maintain body condition over her lactation. Cows that lose body condition easily incur costs in two key ways:
- feed efficiency – it’s inefficient for a cow to lose condition and then have to gain it again
- days in milk – a thinner cow may have to be dried off earlier, reducing days in milk and, therefore, production and profit.
- Breeding Worth (BW) changes will be implemented this month.
- Economic values are the weighting factors used to calculate BW.
- Annual updates of BW ensure farmers have the most up-to-date and relevant information available to inform their breeding decisions.
To learn more visit dairynz.co.nz/ev
This article was originally published in Inside Dairy February 2019