Dairy and beef producers have always seen things from different sides of the fence. Give a dairy producer a heifer calf, and he feels like he just won the lottery. A beef producer, on the other hand, would take a steer over a heifer any day. What happens when these two camps start sharing genetics?
It's a question Riverview LLP has been working on since 2012. The Minnesota company is an integrated dairy, beef, farming and seedstock business. It developed a beef-on-dairy program, Breeding to Feeding, that today produces a hybrid known as the "BeefBuilder." Riverview's level of diversification put it in a unique position to objectively evaluate what each segment of its operation could bring to the whole. Its findings have made it a leader in this new trend expected to positively impact both the beef and dairy industries.
"We are all one farm, playing both sides of this equation," Riverview's Lauren Osborn explains. She works with the bull lineup and on the dairy program, and believes there are several key considerations that make this unconventional combination work. It may surprise beef producers to learn the first consideration for Riverview's BeefBuilder sires is not carcass quality. Rather, it's all about conception.
"Dairy-cow candidates for this program are the bottom 10 to 40% of the herd. Those are our lowest-performing animals, and they are also the hardest cattle to get pregnant. So, the bar we set for bulls has to be high on the fertility side. We can't look at carcass merit or feeding performance in a vacuum. We have to get the cows pregnant first," Osborn says. She adds other key touch points critical to success include calving ease, calf care and consistency.
WEIGH THE BENEFITS
When it comes to beef-on-dairy crosses at Riverview, Osborn says they are clearly seeing the most benefit on the dairy side. Traditionally, a dairy steer calf is inefficient and not of much value to the industry.
"With this program, while we still have the same supply of calves as before, we have new advantages. We went from something with essentially zero value to something that's inherently a better animal," she says. Some estimates put the added value of beef-on-dairy cross calves (steer and heifer) at $100 to $150 per head.
Rabo AgriFinance senior protein analyst, Don Close, agrees there's a lot of positive in this trend for dairies. He adds the beef industry has nothing to fear from the trend and opportunities to gain.
Close expects the beef-on-dairy trend will continue three to five years, at which time it will likely peak. Ultimately, he says this niche could make up as much as 13% of the U.S. fed beef supply. He stresses these won't be additional cattle going into the supply. They will simply be better calves than the dairy industry sent feeders in the past. As a result, the beef industry may see positive ancillaries as the trend expands.
"These calves will create high-quality carcasses," notes Close, adding he believes 80% will grade Choice or better, 20% Prime. "It is a very desirable pool for both feeders and packers. There is exceptional uniformity, grading at or above average, and they will have the ability to easily source- and age-verify these calves."
CRUNCH THE NUMBERS
In its March 2019 report, USDA's National Agricultural Statistics Service reported 9.36 million head of milk cows in the U.S. How many of these cows could produce beef-on-dairy crosses going into feedlots?
Close starts with the premise that dairies most likely to use such a program would have at least 500 head. This sized operation would have the ability to fill feedyard pens with groups of uniform-aged cattle. That brings the dairy cow pool down to 6.29 million head.
Next, consider that most dairy operations today have breeding programs for their best cows that rely on sexed semen to increase the odds of a heifer. Technology has improved accuracy on this practice to 80 to 90%. Removing those top cows from the beef-on-dairy equation takes about 30% out of the pool. Close subtracts another 15% for open cows, reaching a final estimate of 2.94 million head of Holstein and 519,137 head of Jersey available to produce these hybrid feeders.
Considering an annual fed cattle supply of 26.5 million head, Close says the beef-on-dairy cross could impact up to 13% of the U.S. supply.
Much of the foundation needed to make this a viable trend in the industry has focused on genetics. Osborn believes, however, the genetic window to make this combination work is a narrow one.
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"We work on the seedstock side as an organization, selling about 600 bulls each year into the native beef industry," she says, referring to Wulf Cattle's registered Limousin bull program, which Riverview partnered with in 2012. "On the dairy side, we will have about 100 beef sire prospects we test in our beef-on-dairy system. The challenge for us on fertility is huge. Even with our best genetics going into that pool, only one in 10 will pass our fertility standards. And, a year from now, that same sire may not be what we want. This is about constant change and improvement."
Genetics companies are attuned to this trend and are developing indexes to make sire selection easier for dairies looking to add value to calves. Kent Anderson, director of technical services with Zoetis Animal Genetics, says in the past, an issue with dairy calves in feedlots has been the amount of time they needed to be on feed. This leads to high marbling, less efficiency and, in 2016, notices from some beef packers indicating they would no longer process Holstein feeders.
Reasons noted by the packers for this shift included large carcass sizes slowing the rail and high numbers of liver abscesses. While packers had been willing to utilize these animals when the beef herd was at a low point in size and prices were setting historical highs, the attraction came to an abrupt halt as soon as the beef industry began to recover. Some dairy calves, it was reported, were on feed 330 days prior to harvest.
Anderson believes economic selection indexes will be game-changers as this trend moves forward. He says Zoetis has a beef-on-dairy index (ZBOD) focused on the beef and Holstein cross. It helps dairies choose sires based on predicted differences in net return, considering genetic merit across calving, feedlot and carcass traits. It includes Angus, Red Angus, Simmental, SimAngus, Limousin, Lim-Flex and Charolais.
While the genetics side of this endeavor is building support, there's another aspect of any beef-on-dairy move critical to success. The dairy industry would have to make a monumental shift in its philosophy about calf management. In fact, Riverview's Osborn believes newborn calf care will make or break the program. "You can have the best genetics in the world, but if you aren't feeding those calves colostrum or giving them proper newborn calf care, it affects their whole lives. If we are going to put them on feed, they have to get the best possible start."
Rabobank's Close agrees, adding beef-on-dairy cross calves need time to develop on a high forage ration in a grow yard before they are pushed onto high-energy feeds. He believes these calves should be at the origination ranch, or a calf ranch, for a minimum of three months. After that, they would be at a grow yard five to six more months.
"This is what you need to do to help them develop more slowly, allowing time for muscle and frame development. This is also key to rumen health," he says. At 750 to 800 pounds, these crosses will be set to perform in the feedyard. After seven to eight months of feeding, they should finish at 1,300 to 1,400 pounds.
THE COW/CALF QUESTION
What would an increased number of beef-on-dairy crosses in feedyards mean to the traditional calf market? If the industry handles the transition well, it could be a legitimate win-win.
Derrell Peel, beef marketing specialist at Oklahoma State University (OSU), agrees with Close that the trend won't mean more cattle on feed. And, if these calves grade as well as expected, he says there's potential for an industrywide boost on grading percentages.
"I do think there are some people in the beef industry who will have to reconcile themselves to this," he adds. "Certain market segments have strong sentiments against using Holstein-type beef. Certified Angus Beef specifications won't prohibit this, but there may be resistance. I'm thinking of those fine-dining, white-tablecloth steak houses where their specs say no Holstein, even Prime. They will have to reconsider, especially if Holstein crosses are grading out twice as much Prime as traditional beef."
Expansion Ends, Prices Have Room to the Upside
As the beef industry shuts the door on herd expansion, the window for bullish price news opens a little wider.
Moving into spring, ShayLe Stewart, livestock market analyst for DTN, says many cattle producers will have to decide whether to consign feeders early or hold them till fall. They will assess forage conditions in their regions, but just as importantly, they will continue to react to any number of expected and unexpected events throughout the course of the year.
"Externals like African swine fever, trade agreements, the coronavirus and even a presidential election this year will all bring volatility into our cattle markets," she explains. "We have to be strategic and poised if we are going to come through these challenges positively."
Stewart stresses it's important to recognize that when there is market adversity, there is opportunity. A key to taking advantage of that opportunity is knowing one's true cost of production. "I can promise if you don't know your costs, you aren't taking full advantage of marketing positions and opportunities," she says.
This year, part of the decision-making process will revolve around whether preconditioning calves pays. Stewart believes producers who don't precondition will likely lose out on profit potential, as well as future sales. She stresses preconditioning is the foundation of a good relationship between cattle producers and buyers.
"We don't have to have the same marketing strategy every year or sell to the same buyers," she says. "But, we need to know how buyers are receiving our calves. It's important to contact buyers and find out how your calves fed out. Were they happy with how their feet held out? Did the heifers fall back? Ask them how you can increase the value of what they are buying from you, and they will want to work with you again."
Looking at long-range specifics, CattleFax analyst Kevin Good reports the group believes the beef market has made a turn to being demand-driven. That, along with positive export projections, will help support improvements in price and increased market share for beef.
Moving through 2020, he notes beef cow inventory will hold at about 31.8 million head. Exports are expected to increase 5% and imports to drop by the same. Per-capita beef consumption will step up, reaching 58.4 pounds.
Early price projections from the group put fed steers on average at $120 per cwt -- a $3-per cwt increase over 2019. Both 750- and 550-pound steers were projected up, on average $6 more per cwt. Utility cows were expected to bring, on average, $5 more per cwt.
OSU's Derrell Peel believes most of the market pressure will occur in the first half of the year when supplies are expected to be heavier. "As we go to somewhat tighter cattle numbers in the second half, we are going to see moderate supplies and flat production. By the end of the year, supplies could be tighter, and I would expect prices in the second half to reflect that movement."
An ongoing issue when it comes to cattle pricing today is market transparency. DTN's Stewart says little true price discovery remains in the market.
"This truly hinders feeders and cow/calf producers," she says. "I believe it holds the market back and takes the steam out of opportunities. More price discovery would benefit cow/calf producers because it provides them more market leverage."
Stewart notes the industry used to see a show list multiple times a week; now it's down to once a week. The fat cattle trade is limited to one hour each week.
"That is really ridiculous," she says. "This kind of rapid-fire cattle trade does not let a market develop. It doesn't do anything to put profits in producers' positions. Once you give that up, it's hard to get back."
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