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Part 2 (of 2) of our time with Joleen Hadrich, Economist and friend of The Moos Room. Thank you for listening!
Hosted by members of the University of Minnesota Extension Beef and Dairy Teams, The Moos Room discusses relevant topics to help beef and dairy producers be more successful. The information is evidence-based and presented as an informal conversation between the hosts and guests.
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Dr. Joe Armstrong: What's up, everybody? This is Dr. Joe Armstrong. This week we are continuing our conversation with economist Joleen Hadrich. If you didn't listen to last week's episode, I encourage you to do so. It's episode 148. It has all the setup and the first half of our conversation with Joleen. Thank you for listening, everybody. Let's get into it. What your study here is showing is low input, low output potentially over the long term is more financially resilient than a different strategy.
Joleen Hadrich: Yes, that is what this shows.
Dr. Joe: Is this a tortoise versus the hare kind of situation where we have farms that are pushing it too far in one direction in terms of trying to advance? I'm trying to get my head wrapped around what it means on the really big picture.
Joleen: I think it depends on the management style. I have this friend whose family has a dairy operation and that dairy operation is set up like that hare scenario. Every 5 to 10 years, they expand, and it could just be one or two bad years and they could lose it all, and they know that. It's that thrill of making it through those difficult years that I think they enjoy. This individual has transitioned and her and her spouse now have a much smaller operation and they're the turtle. [chuckles]
They're like, "You know, we are fine with our smaller operation. We own almost all of our land. Our bills are paid off. We are comfortable and we're happy being comfortable." Their management style is not to be the biggest and the best. Their management style is how do we generate enough profit to be comfortable and not have to get side jobs to weather those swings? That's just a difficult question to ask because you need those two groups to push the industry forward. It's just knowing myself, I'm not risk-loving enough to be in that hare category [chuckles], I'm pretty sure.
Dr. Joe: I'm not either. I think one of the things that we haven't discussed yet that we need to talk about is how long cows stay in a herd in general because what you found surprised me. I was basically surprised this whole time I was reading this paper, apparently, but there was not a big difference between resilient and non-resilient herds and how long a cow stayed in the herd, right?
Joleen: Yes. I think the average was about three years between the two groups. I don't have the specific number in front of me. I think that average was driven some by-- Those resilient herds, if you look at their culling rate, were a little bit more aggressive in culling. I feel like we didn't present this in the paper but when we dug into the data, they had specific rules like once we treat them for mastitis twice they're gone. They don't hold on to them. They were getting rid of those cows much sooner. I think that pulled some of their averages down because we just had a smaller sample of cows in those smaller herds. The reality is our resilient farms were smaller. They were about 100 cows whereas our non-resilient, the average was about 220, but that range was pretty wide on that non-resilient.
I think some of that's coming into play. As an economist, it just really surprised me that if my cow broke even in lactation two, why would I get rid of her? I've invested in all of this up to this point. Why wouldn't I milk her another three or four years? Because I know all I have to do is cover those annual costs now and her revenue should more than cover that, especially when I'm considering the offspring of that calf, and if she has good genetics. I'm just building my herd over time. I think that's the thing that was just really surprising to me in this result. It's why we don't do that more?
Dr. Joe: It's always been surprising to me. I feel like you see it every once in a while, a farm here a farm there that has a lot of older cows around, and if you ask them why it's like, "Because she's an awesome cow. Why would I get rid of her?" I've always wondered that too, especially when you tell us the breakeven percentages on the first lactation. Why would I take that cow that's already paid for herself and replace her with a cow that potentially has a one-in-five chance of breaking even on the first lactation? Now, that's really oversimplified math without considerations for genetics, but why? I don't get it either. Maybe that's the next step.
Joleen: Yes. That was actually one of the greatest struggles we had in getting this article published. It's that one of our reviewers was really anchoring on this point is that your genetics become stale if you are not rotating your cows every two years. I understand that perspective if you want to increase genetics and you've bred for that, but from an economics and capital constraint perspective, I think there has to be some type of middle ground, especially when looking at limited resources. I don't know. It seems like keeping that good cow in that's generating that profit over time would make sense to me.
Dr. Joe: I think this is a concept that gets more widely accepted on the beef side of things when we look at good cows sticking around and a lot of older cows sticking around. For me, genetics are advancing. Maybe Bradley can comment on this in his perspective as a geneticist. Genetics are advancing, and yes, we want to keep them moving forward, but at some point, it's about cash flow and being successful now. In my mind, and Bradley, you should correct me if you can on this, is that genetic advancement so big now that we've made a bunch of genetic advancements, or has that increase gotten a little smaller and it's less of a justification now?
In my mind, I feel we're approaching the plateau of that improvement of genetics when it comes to taking it higher and ignoring the fact that you have such a good cow that's proven. Maybe that's my risk aversion too. I like proven cows. I like proven bulls. I like animals that you know what they're going to do. They're reliable, and they provide the cash flow. We just lost Bradley. I don't know if he can comment too on it later maybe.
Emily: Yes, I was going to say that. I'm like, "We called Bradley out and then he just leaves." Joe, listening to what you're saying, and to Joleen, what you're saying as well, do you see whether it's happening now or if that's the path forward of creating some sort of balance in that of, yes, we can push our genetics but in a more moderate fashion, so that we are also keeping in mind this idea of financial resiliency and lifetime breakeven. Did you see anything like that or do you see that as a path forward on this?
Joleen: I'm not an animal scientist, so I don't know how much those genetic enhancements are going and I would really like to know. The economist's answer is if I could know what that dollar value of that genetic enhancement is or improvement, whatever that is, that marginal increase, and compare it to that differences in these breakevens, I think then we could draw some comparisons. If her milk yield is going to increase substantially, or she has better meat quality characteristics when she is sent to harvest, then maybe we can draw some of those conclusions. I think that's the comparison you have to make.
I think historically, we were so focused on genetic improvement. We needed to produce more with less, and that came through with genetics. We have to couple the dollars with that as well. The reason why we have to is because the milk market is so volatile in the past 20 years, that these dairy farmers, I mean, talk about a stressful occupation. [chuckles] Everyone on this call, we get the same paycheck every two weeks, and we know health insurance is covered. That's not their world. That paycheck changes every two weeks. Figuring out what that balance is, all these things come into play. I'm fairly certain I did not answer your question, Emily, at all.
Emily: That's okay because now we see that, yes, maybe we can dive into that more. I am also not a geneticist by any means or an economist, so I really don't have a foot to stand on here. Yes, it would be interesting to see how can we get that dollar value from genetics. How could we pull that out? Obviously raises more questions and answers, but that's not a bad thing.
Joleen: It's not. It helps us inform our research program. This whole project really came up from questions farmers asked me. They're like, "How do I know if my cow is breaking even?" I'm like, "Well, look at this." Then I was like, "Wait, we don't have the heifer raising cost. We don't have all these other things that are factored in. I can tell you what our break even is on an annual basis, but I don't know if this is a first, second, or third lactation cow, so let's figure it out. Let's see if we can do it," and we did it.
Dr. Joe: Well, heifer raising costs come up all the time because that's a huge expense, and one of our biggest expenses, especially if she-- Maybe this is not the way an economist should think, but the earlier she fails out, the more impact that heifer raising cost has.
Joleen: That makes sense.
Dr. Joe: I still think that's one of the hardest places to decrease that cost. I know it's such a huge factor in all of it, but it's so hard to decrease that cost because there's so many other factors that come into it when it comes to labor, space, all of those things, especially if you're sending them somewhere else to be raised. Do you have any world-solving ideas on that end, Joleen?
Joleen: No. Again, this is one of the things that the reviewers nitpicked a bit, our heifer costs from when the calf is born to when she first enters a herd, all came from FINBIN, so these are the numbers reported by farmers. Our challenge was not all of our contributing farms reported that. We had to use the average for the FINBIN system for that, but I felt pretty confident we had that split out by farm size. We could split it out in a way where I felt comfortable doing that, but we did see pretty drastic variations just across our database on that for the reasons that you're talking about.
I think it's always hard for us to decide to stop doing something. You're going to throw everything at that animal so you can get that calf out of her. You've invested 22 months, you're not going to let her go now. That gets to be hard. The one thing that I will say with this study is that it seemed our resilient farms didn't push their cows as much. They entered the herd a month later. They produced about 1,000 to 2,000 pounds less of milk a year, but they had a much lower death rate.
They had an aggressive call rate when the cow wasn't performing, but in general, the call rate was well below normal standard. It was just a slightly different strategy where it wasn't like, "I need to maximize my output of this cow in the shortest amount of time." It's what you came back on like, "I have a long game with this cow. I want to keep her healthy and not run her down so that she can stay in the herd six years."
Emily: That's something I really like about this paper is, it really focuses on that management piece, which is something we talk about a lot on this podcast, a lot, a lot. Every farm makes different management decisions just based on their goals and what they're trying to do, and so I think that's a really important piece of this to keep in mind is that this paper, I don't feel it's saying doing this and this is wrong and doing this and that is better. It's a matter of, "Here's the information and some of the financial pieces of that." That's another piece that we can use in making our management decisions.
Joleen: Absolutely. I think I said it before, it's not a one size fits all strategy. Picking out what are the pieces that make sense for you that you can apply on your farm and going with that rather than trying to keep up with the Joneses down the road. I think that's where people get in trouble. At least that's what I saw growing up. Everyone wanted to keep getting bigger, keep expanding, and I think in the late '90s, early 2000s that was the strategy, but that was just the start of that volatile milk price.
Now we start seeing some of the ebbs and flows. They're really hard to manage around. All the risk management tools that we provide, they even aren't always foolproof when it comes to how this market has been, especially in the past three years. Do you want to ask Brad his genetics question?
Dr. Joe: Yes. Bradley, are you there now?
Bradley: Oh, hey, I'm here, yes.
Dr. Joe: Oh, hey Brad. Just to catch you up, you got cut off, but we were discussing basically the value of genetic improvement and if there's a way to put a dollar value on that because we can't figure out why people get rid of second lactation cows that have already broke even and they're a good producing cow and they give it up in favor of a cow that has more genetic value and that doesn't make sense to us. Is there a way to explain that from a geneticist's point of view?
Bradley: When we look at genetics, we usually figure it out from a lifetime net merit and with culling in the factor, and if you take a younger animal, they're on average going to have a higher lifetime net merit than an older animal. Really that's why-- Sometimes the lifetime net merit is maybe biased towards the younger animals because you're going to have more profit over that lifetime for a younger animal than you will with an older animal because of lots of different things that older cow costs more for diseases, they have higher culling rates, you name it, and that's all factored into it. Sometimes it's tough to disentangle genetics from management because the genetics will say that a younger animal is going to have more profit than an older cow, but that might not be the case always.
Dr. Joe: Yes, because to me, when I look at the genetic side of it, and especially considering Joleen's data here where we're saying that only 20% of our animals break even by the end of their first lactation, it makes sense to me to hang onto that animal that's already proven and has already broken even and make more of her rather than getting rid of her. This comes back to the conversation we've had on this is do you make your farm fit the cows or do you find the cows that fit your system and your farm? If you've already found the cow fits your system perfectly and is doing so well, why wouldn't you just make as many of those as you can?
Bradley: I agree. Ideally, you'd want the cow that fits your system and just clone however many cows you want and have the same one. Some of this almost comes back to individual cow management again, even on a larger herd scale because I've talked with other economists and dairy scientists and they're starting to get back into calculating economics on an individual cow base, this daily or weekly to figure out if this cow is profitable or not, and then you can judge.
You take out that, whether they're a second lactation cow or a fifth lactation cow, all of the economics calculate into it, and it gets into do you breed this cow to dairy? Do you breed it to beef, and a whole bunch of other factors? I think it's getting back to the individual cow management again compared to herd management when you start thinking in those terms.
Dr. Joe: We've been talking for a while now and the final question to ask Joleen, which you may not have an answer to, is based on what you found here, what do you tell people? You said you had two questions that people ask you all the time. How can I make more money without having more cows and how do I just stop hemorrhaging money? Do you feel like you are a little closer to answering those now?
Joleen: Well, my normal question back to them when they ask me that is, do you have an enterprise budget on your dairy? Like on the dairy enterprise? Because the way that you answer those two questions is getting back to what Brad just said, you need to know what those costs are tied to that cow. Every herd has high-producing cows and low-producing cows. Assuming that those costs are equal across is not realistic. My very simple and obvious answer is know what your costs are on your dairy unit.
It is surprising how many people cannot answer that question. My parents don't have the dairy cows anymore, but they could not answer that question. I know that, and I know of many people who are best and their best intention is to have that number, but most people are dairy farmers because they love the cows. They are not dairy farmers to be economists. You just need to have a kid who is an economist and then your problems are solved. It comes back to any day-to-day life. Know what your budget is and know if you're benchmarking up to it or not. That would be my recommendation.
Then you can probably address some of these bigger issues. We're going through this right now, looking at why are feed costs so high and how do I manage that without giving up milk yield because I need that milk yield to pay for these feed costs and now we're in the hamster wheel that we can't get out of.
Dr. Joe: With guests lately, we have been doing it up to questions for us. If you have any, it's your chance to grill Bradley. Oh, we never give him a hard time for being late. You're technically his boss now.
Joleen: Exactly. That was when you weren't showing up, Brad. I'm like, "Well, I guess we can bring this up during his performance review."
Bradley: I was having a farmer meeting where we were talking about cost, all kinds of stuff.
Joleen: Well, I guess I can ask this question to all three of you, and I'm sure you all have different answers. I think this whole conversation has been about, "Wow, these numbers are so surprising," and "Wow, economics is really important on the dairy side." You each have different specialties. How do you incorporate economics into what you're doing in your extension roles and how can we work on it? I don't want to say improving that relationship, but what do we need to do to make sure that we can keep this at the forefront knowing that it is a priority?
Dr. Joe: That's a big question. Emily, you want to start?
Emily: I will start. I feel I maybe could have answered a little easier. Working in farm safety and health, we have a lot of occupational data about the cost of lost time from injuries and cost of things like funerals and workman's comp and all of those pieces. One of the ways I bring economics into the work that I do is really emphasizing that when we have an injury, when we are not safe, when we are not healthy, we are taking money away from the farm or even losing money, lost productivity, whatever it might be. That is a way I use it. Like I said, I feel like I have a little easier avenue because people know if they're hurting in the hospital, it's going to be expensive.
Also, most people don't want to be hurt in the hospital, money piece aside, so maybe a little easier for me to put that into my work just because we have a lot of information about what happens when we have lost time on the farm and because farm safety involves the people on the farm. Hopefully, we're putting the highest amount of value on our people, so we consider that side of it too.
Joleen: That makes sense.
Dr. Joe: Brad, you got an answer? I'm still working on mine.
Bradley: From my perspective on the things that I've worked with farmers, I think yes, helping them to know what their costs are, but also looking at it on a more frequent basis, and how the changes that they do or make can affect their bottom line because we talk a lot about farms and economics. I have some farms that I work with. They're on Minnesota farm financial business management groups. They do some things but a lot are just doing it at the end of the year. When they do taxes, they figure everything out.
I think helping farmers, maybe they do quarterly or monthly or whatever it is because things change a lot on dairies. The decision that I made about buying straw in July is maybe affecting me now, so how do those economic decisions happen and how do we watch the finances on a more frequent basis? I think even just getting that out to farmers that we should be watching our finances on a quarterly basis and not wait till it's tax time and then it's, "Oh, maybe we shouldn't have done that." Now all of a sudden, they got, "We need to go buy a combine because we have way too much money." Doing it more on a frequent basis with farmers, I think, would help out a lot.
Joleen: I agree with that. I always say cash in my checking account doesn't mean I'm making profit. Sometimes it does, but it's looking at that frequency to see, yes, you're maybe covering your bills, but are you also going to have to sell livestock in three months to pay that large tractor payment that's coming due? If you're checking in on a quarterly basis, you have a much stronger grasp on where that money is coming in and how that works.
Bradley: I agree. It's easier to look at milk prices and everything for you from a quarterly basis because we have no clue what's going to happen to the milk price a year from now and whether-- Being more prepared and knowing what the finances are, Joleen, I agree more frequently is the better.
Dr. Joe: Okay, I think I finally got mine figured out. In school, we're taught to push for production, regardless of what that means. It's always more production is better. As you get out in the real world and you talk with farmers and you figure out what actually matters to them, it changes your perspective, especially from a veterinary standpoint where we're taught to ask for more production and try to figure out how to do that, while also thinking about economics on an individual cow basis.
The more I'm involved with farms, the more I talk to farmers, the more I think it's key to look at a systems approach when we're looking at all of it, including all the intangibles, I guess I would call them, that make decisions different when we're talking about time, labor, and then this discussion of economics, and how much emotion plays into that and sometimes can outweigh economics because not every decision is economics. If you want your son or daughter to come home and work on the farm, sometimes you make a decision that isn't the best economically because there's a lot of emotion involved and you're willing to take that risk all of a sudden, so there's a lot of that.
I think what I try to do is start by having a general discussion about what a break-even is. Start with partial budgets for easy decisions. Those partial budgets really lead into, "Well, if I can't figure out how these numbers go into this one small decision, how can I have a handle on the rest of it from a big-picture standpoint?" For me, it's just one more piece in the system that I found that I need to account for in everything.
Most of it is just knowing the farm super well and knowing the farmer really well so that you can have those discussions and it's not super awkward when you're talking finances or looking at the big picture cost of production because if you don't know the farmer very well and you ask about the cost of production, even if they know it, they're not going to tell you. Absolutely not. That's a very private number. It's just one more piece in the whole system for me.
Joleen: Finances are a very private thing. Even as human beings as a whole, we don't want to talk about finance. We don't want people to know how much money we make. We don't want them to know what our cost of production is. All of those things. Your point about emotion is really key. Whenever I give marketing talks, I'm like, "Okay, the price of corn has went up $0.30. You have a barn full, and it hasn't went up in $0.30 in 12 months. Are you going to sell that corn?" What does everyone in that room say? "No, it's going to go up."
Farmers are eternal optimists. We only believe the price will go up. There's a 50% probability of both, so it's so hard to make those trigger points. "When corn is this, we sell." Sometimes it's good to just have someone who's not tied to that emotion that's doing it for you and you can't go back on it. Yes, those things all fit together. It's what makes my job so exciting. There's always something new thrown at you.
Dr. Joe: Absolutely. I agree. When we're talking culling, when we're talking about these things, having a list of things that say, "Here's the criteria. We're going to follow this," and then knowing that you're probably going to break that, you've got to out to decide on what's going to break that. Do you have a favorite cow in the barn? If you do, you better talk about it now because if she pops up on that criteria list, you got to make a decision. I agree. I think there's a lot to think about. Emotion plays a big piece of it as well.
Joleen: Fun story with this project. We did have a few, I'm going to call them show cows in our data set that we pulled out. How we knew that they were special cows is that all the cows in that herd had a number and then someone's name was like Daisy. It's like, "Delete Daisy. We know that Daisy costs way too much money. Get her out of the study." We still allocated the cost knowing that there was another cow in there, but it was if that name is different from everything else, we know that it's not the standard and we have to account for that.
Dr. Joe: That makes sense to me. Yes, that is definitely a real-life scenario. Any other questions for us, Joleen?
Joleen: No, that was it.
Dr. Joe: Awesome. All right. I think we've talked long enough. We'll see what the time on this-- It might end up being two episodes just because we had so much to talk about. Hopefully, we can get on Joleen's schedule in the future as well. We can talk more about whatever she wants to talk about. Thanks for being here, Joleen. We really appreciate it.
Joleen: Yes, it was great. Thanks for having me.
Emily: All right. If you have questions, comments, or scathing rebuttals to today's episode, you can email those to themoosroom@umn.edu.
Dr. Joe: That's t-h-e-m-o-o-s-r-o-o-m@umn.edu.
Emily: You can also call and leave us a voicemail. That number is 612-624-3610. You can find us on Twitter @UMNmoosroom and find us on the web at extension.umn.edu. Bye.
Dr. Joe: Bye. Bradley?
Bradley: Bye-bye.
Dr. Joe: It's okay. Thank you.
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