The Jersey breed is currently on a roll.   More people want Jerseys than presently have them.   More Jersey semen and Jersey bulls are being used for dairy crossbreeding than ever before.   Many leaders in the developing seasonal grazing movement promoted the superiority of Jerseys in grass environments.   Nations that never had Jersey cattle are starting to bring them in; nations that wrote Jerseys off a couple decades ago have returned to them.

WHY?   Milk pricing changes from fluid emphasis to component yield emphasis have helped, certainly.   The impression that modern Jerseys are more productive than traditional Jerseys has also helped.    However, basic breed advantages in traits-- easier calving heifers, earlier maturing cows, higher fertility, longer functional life, better heat resistance/adaptability to the climates of dairy growth regions, smaller space requirement, more efficient feed conversion--  these are the key reasons why Jerseys have become popular.   These traits were bred in, over a long period of time, by the efforts of the many Jersey breeders who were focused upon the economic value of these advantages.   They were also reinforced by culling practices during the period when milk price supports made milk volume the focus of the industry, and the market for surplus Jerseys was low in price and very regionalized.   

What are the "profit centers" in dairying?

Our veterinarian gave us some information gathered from Minnesota farm records around 2001, that were developed by the efforts of a lending system that wished to understand what actually "made" a dairy farm profitable.   It used what is called "enterprise" accounting, breaking each dairy farm into four sectors:  (1) Milk production, (2) Replacement heifer production, (3) forage production, (4) grain production.

What was found is that the basic business of making milk out of a good feed ration was pretty profitable (26% profit on 2001 prices).   The business of raising replacements was more variable, averaging a 4% profit but covering a wide range of experience (a third of dairymen losing money, a smaller percentage making as much on heifers as they did on milk).   The cropping side of the average dairy farm was where troubles existed, with an average 22% loss on production of forages, and a 3% loss on production of grains (which would have been worse in the absence of ASC base payments). 

This is the sort of data that has influenced large, nonfarming dairies to bloom in the deserts of the west coast, and explains the exodus of traditional family-size dairies on the east coast.    Crop production involves a lot of inflation in the costs of inputs, and a heavy equipment investment.   Most dairy farms either lack the acreage to recover equipment costs, or do not have time around chores to do timely harvesting and guarantee optimum feed quality.

What does this have to do with the "purebred" business?   Simply this: keep farming "as usual", and the enterprise within your farm that operates at a loss could put the rest of your operation out of business.   Part of farming "as usual" is to not recognize that cattle values have generally increased, not as a factor of beef prices, but a factor of scarcity.   The growth sector in dairy (expansion herds,  "milk factory" dairies who sell all calves at birth, immigrant dairymen) has not only increased demand for replacements but has changed its idea of what kind of cow it wants.   This has made raising heifers change from a "cost of milk production" to an "opportunity to supplement the milk check".  

Why focus on replacements if it only averages 4% profitability?

As mentioned earlier, this "average" hides a wide degree of variation.   Any farm that has a high calf death loss or a low reproductive rate will likely be losing money on their replacement "profit center" (ie, they have to buy some of their needs from the external auction market to keep their milking barn full).   Likewise, a farm with good calf survivability and good cow reproduction can still lose money if their forage program is not producing feed on which heifers can grow at normal rates of frame gain and development to calving.   However, if you have quality feed, keep calves alive, and keep cows bred back on time, replacement raising becomes profitable-- because you will then produce a surplus of functional cows from effective reproduction.

We know many dairymen whose annual surplus cattle sales (separate from cull sales) is a third or more of their milk receipts.   In a majority of cases, these dairymen also happen to be breeding "purebreds".   These are the guys who can replace machinery without having to get mortgage refinancing to stay in business.   It is a great feeling.   It is also simple economics:   Cull Jerseys (900 pounds @ $.40) bring $360 today.   Grade Jerseys at local auctions bring anywhere from cull value to maybe $1000.   Purebred Jerseys bring $1200 from cattle dealers, and many JMS auction sales are making averages of $1500 or higher (the recent Butterfield Dispersal in Arkansas averaged $1810 on over 500 head all ages)!

If you raise heifers only to keep your barn full, avoiding herdsmanship to keep mature cows functional (which we call the 1970s dairy state of mind), and assume selling replacement cattle is more trouble than it is worth, registration papers may seem a waste of time and money.  But that locks you into the lower side of that 4% average, because every time you turn a $1000 commercial milking Jersey into a $360 cull, you only have $360 on hand to pay yourself back for the two years of rearing costs on the fresh heifer who replaces her.    This is the "purebred" state of mind, recognizing the opportunity cost of not managing (and breeding) (and registering) for a surplus of functional dairy replacements.   The "opportunity cost" of not thinking like a purebred Jersey breeder is currently over $800 per fresh heifer.     How many heifers are you raising per year?   Would it not pay to position yourself for the highest potential rate of return on such an investment?

Monocultural farming is not as "sustainable" in practice

More and more land-grant universities are developing "sustainable agriculture" programs, alongside traditional production research programs, which mirrors the two parallel realities existing in the dairy industry today (high external input, highly capitalized, commodity focused production; lower external input, more land/less equipment capital, biologically-focused, crop rotation production).   This is not just the result of consumer and environmental concerns over agricultural practices.   The long-term lesson we predict from having "sustainable" agriculture studied alongside "commodity" agriculture is a recognition that single-crop "monocultural" farming is no longer as profitable.  A farmer needs to be specialized to keep up with the explosion of new knowledge (and the downward price pressure in commodity buying), but it costs too much to focus all your capital and labor resources on one single "milk" crop.   ("You need more than one string to your fiddle if you're gonna make music".)   Monocultural thinking, in fact, is what prompted this Minnesota bankers' study of dairy economics; too many of their high-production loan accounts were struggling to meet their loan payments.

For specialized dairymen, what is increasingly clear is that commodity prices for milk will only cover direct operating costs (Labor, feed, veterinary, sanitation, utilities, etc).   His capital servicing (debt repayments, financing interest, depreciation) costs require another cashflow source.   This used to come from deacon bulls and cull cows, but the low prices these classes of animal generate is no longer significant compared to the impact of the industrial inflation rate upon farm and dairy equipment costs.

Why is this true?   Because commodity markets never pay the full industry cost of production, but only pay the price acceptable to the producer with the lowest cost of production.   In the global dairy business, the lowest-cost producer is that fellow milking water buffalo by hand in a river.   In North America, it is those many producers who are just coasting into a future retirement, with no debt, no expansion plans, milking in old barns with old equipment they can fix themselves, avoiding big feed supplement bills, milking cows of moderate productive ability that require no extra care, hiring no external source labor.  These dairymen, of course, often have small numbers of replacements to sell, which supports my point (they are not a "monoculturist").   They might also have a few steers in a back shed, and a pumpkin patch.   They call manure fertilizer.   They are not studied by many researchers, because they are not interested in testing new hormone therapies or wonder drugs, are not on test, do their own accounting, and use tractors that are decades old.   We tend to forget they are there until the price of commodity milk falls, then we want to buy them out of business to reduce the "surplus", which is the only time the industry acknowledges they have a lower production cost than the new mega-dairy around the corner.

Producing more than one "crop" from an integrated capital and labor base is how the multiple-income-stream farm is more profitable than the monocultural farm, in an economic sense, even before you argue differences in "organic" vs "chemical" husbandry, which enters the realm of the philosophical and metaphysical.   To be successful at generating net income from surplus cattle sales, you need to think like the sustainable agriculture guys.   You will start to focus on the sort of things purebred breeders have always known: all cows are not alike.   Healthy sells better than sickly.   Well-grown sells better than small and thin.   Typy sells at a higher price than functionally ugly.   And finally, purebred/identified accesses a wider market than grade/unidentified (you can turn a registered cow into a grade to sell in the commercial market, but you won't sell too many grades into the purebred market) .  

What is the real rate of return upon registry fees?

I have yet to see anyone calculate this according to economic reality.   Lets give it a shot.   Say it costs $10 to register a calf in fees, and $2 in time (AJCA forms are the simplest in the purebred industry).   Lets say further that only one in four heifers raised in your herd will be sold as a surplus replacement (three of four will spend their lifetime on your farm and be sold as culls).   This means you will have a $48 investment per surplus heifer calf in the purebred business.

As I mentioned earlier, the order buyers are buying Jersey herds in our area for $1200 to go to commercial dairies, but the Jersey Marketing Service (dispersals and consignment sales) is averaging $1500 annually.   This is a $300 premium per head for a good dairyman to get involved in the purebred Jersey business.

Of course, registry is front-end loaded, you pay the fee on calves, you sell them as cows two to three years later.   If we add some interest to those fees, we might have $60 per surplus replacement invested at time of sale.   How often, even when the stock market was going crazy in the 1990s, could you turn $60 into $300 in two years??   That is an annualized rate of return of 225%.   All you have to do to earn it is to do the same good job with feeding your cows and raising your calves as you did before you decided to go purebred, plus start keeping the breeding records that will support accurate identity.. and every couple of months, fill out some registry applications.

This example proves the real rate of return is dependent upon developing skills as a stock breeder.   If your herd culling rate is in the 40% range, and it takes all your replacements to keep your barn full, registration becomes less of a profit center and more of an expense, more like term life insurance premiums (you will only "collect" when you disperse your herd at retirement).   If you milk cows thirty years, then disperse your herd at JMS auction to earn the $300 per head premium, you might average eight generations of registry fees per cow sold-- at $16 per generation in fees (because 40% of your registered cows were culled annually), plus thirty years accumulated interest--  you will have $150+ per cow invested.   This is still profitable (as long as we can be sure the demand for Jerseys will stay strong compared to other competing dairy breeds) but it is not 225% annualized, it is more like 2.5% annualized.   Right now, even that low a positive return is better than bank interest.   (All it would take to boost this higher is to sell a few 4H project calves each year and capture the premium then.)

The real profit in "purebred" cattle comes from breeding functional longevity

It is as simple as this.   The average grade commercial cow lasts 2.4 lactations according to National DHIA.   That means the average cow calves three times.   That means statistically, the average cow produces 1.5 heifers.   By the time we deduct for stillbirths, scours and pneumonia, freemartin twins, injuries, and infertility/inbreeding effects, the average cow just replaces herself.   This is obviously true whether they are registered or not.   Registry by itself will not change the basic population herdlife statistics.   Furthermore, your banker will not be impressed if all you do is the "average" at generating replacements.. 

Adopting a purebred breeding attitude-- mating cows for more uniform and functionally correct replacements, selecting from sires with superior inherited ability in your focus traits, selecting genetically in the direction you believe meets needs of a changing dairy industry-- is the first step, and it may involve a change of attitude in what kind of sires you use.   Adopting a traditional animal husbandry attitude-- that cows are a living breathing being, over whom we exercise a responsible dominion, worth our daily attention in caring for their welfare-- that is the second and equally vital step called "herdsmanship".   Learning how to market yourself and your cattle as useful to buyers is the third and last step, and your reputation depends upon the first two..

For a herd to progress genetically, you have to produce a functional surplus of animals, after the replacement of worn out cows, that will allow you to "cull" genetically.   This is impossible until your involuntary cull rate gets below 40%.   At a 30% annual cull rate, you will be able to sell one of every four replacements you raise IF you have an annual calving interval and 5% or lower calf loss.   At a 25% annual cull rate, it obviously gets much easier.   If we equate these cull rates to cow herdlife, it will look more like this:   2.4 lactations = 40% cull rate.   3.5 lactations = 30% cull rate.   4.0 lactations = 25% cull rate.  

Too narrow a genetic focus interferes with extending longevity

When your focus as a monoculturalist is in maximizing pounds milk per day per cow, your genetic selection focus stops with randomly using the highest PTA milk yield sires.   For the average commercial dairy, this may seem to be the practical option, when a cow is only going to complete two lactations anyway (never living to the average age of physical maturity, which in Jerseys is around five years of age).    Compound this thinking over a multiple of generations and you will have nothing but cows who are halfway to dead before their first calf-- what more polite breeders call "faster maturity".   Single trait milk selection becomes a self-fulfilling prophecy (the only thing you get "for sure" is milk).   A big part of what makes a bull "high milk" is just that his daughters hit their yield peaks at earlier ages than most other cows.

The Jersey breed already matures quicker than other breeds.   To continue our focus upon that trait in genetic selection may be to lose us other breed advantages (calf vigor, fertility, test% levels, feed efficiency, herdlife) that previously were held in a symbiosis of "balance".   This is what is happening within the herds that have been studied that show "inbreeding effects".   Now that you are a breeder, you will want to think about the kind of cows the market really needs, and reorient your sire selection into a multiple trait selection framework that gives you a chance to overcome developing breed weaknesses (and all breeds have some) as well as preserving breed advantages.   This is the kind of genetic selection approach that purebred Breeders typically follow, and is the kind of thinking behind the AJCA's "Jersey Performance Index" (JPI).                                        

What if the market for Jerseys quits growing?

Before the recent boom times, the difference in value between a grade Jersey and a purebred Jersey was almost 100%. We would have $1000 State Sale averages, and then the next week you could buy $500 Jerseys in the auction barns.   It is even more important to maintain registry when the market is not growing, as the purebred niche markets may be the only opportunities to recover the true rearing cost of a replacement animal.

Many Holstein dairymen who have registered their calves for decades, are now discontinuing the practice.   Why?  "It costs too much"...  "It takes too much time"...  "I can get as much for them as grades."   The Holstein breed suffers from three major forces all occurring together:  (1) The market-- most milk pricing is now multiple component, neutralizing some of the advantage of a high fluid yield cow (given the areas of expanding milk production are distances away from population centers) once costs for transportation and processing are factored in.   (2) Feed efficiency-- you cannot assume the cow who milks the most is the best.   On a calories eaten per pound of milk solids produced, the larger framed, higher milk yield, lower test% cow loses out to the smaller frame, more rumen-active, higher test% cow.    The dairymen who figured this out the fastest are those who buy all their feed.(like the big corral dairies in the western desert) and this is where the biggest switch (Holstein to Jersey) is ongoing.  The next biggest switch is among those who convert to low-input intensive-management rotational grazing, where the "feed efficiency" argument is reinforced by body condition scores and relative conception rates.   (3) Misdirected trait selection-- the Holstein heifer finds it nearly impossible to calve unassisted, resulting in a 15% average calf birth loss.  She has lost so much fertility that most dairies are resorting to "chemical" fertility (routine OvSynch) at great incremental cost.  She has clumsy legs and feet that constantly need trimming to avoid lameness.   She is ketosis and D/A prone after most freshenings. A big proportion of ranking genetics contains the two lethal recessives "Blad" and "CVM" and a majority of the Holstein fraternity thinks this is no big deal (in spite of the links to fetal reabsorption and immune deficiency)..   As a result, this big cow that costs $1200+ to raise has a pretty short functional life.  For too many years we blamed this on "hot rations" and "higher production" but the blame has to be shared by the many Breeders who sold out to the lure of big dollars shipping high-indexing embryos to Europe's single-trait (PTA Protein) selection market.   Now that this market has collapsed, there is nowhere else to go with the "superfreak" Holstein elite. 

Given the Holstein still dominates numbers in the western dairy world, and the Holstein leadership is failing to address its problems, the growth market for Jerseys should last awhile longer.   As a new Breeder of Jerseys, however, it will pay you to keep the dialogue going with old-time Jersey Breeders such that we do not, in our success, repeats the mistakes of the once-proud Holstein breed and become ignorant in our arrogance of the pitfalls of single trait selection and the risks of too narrow a bloodline and trait focus in genetic selection.    The Holstein has one advantage over the Jersey, and that is the beef market.   Holstein deacons bring five times the price of Jersey deacons; a cull Holstein cow brings twice the price of a cull Jersey cow.   This is structural to the veal market, the feedlot business, and the packer industry, all of whom are focused upon carcass size.   This sustains the grade cow floor to the commercial Holstein cow price; most Holstein dairymen are de facto members of the beef industry (40% cull rates will do that to you).

Basically, the beef market sets a floor under any replacement cow market.  This cushions fluctuations in cow values for large-breed dairymen.   In the Jersey business, beef income (unless you sell your steers through a freezer beef market) is not a reliable source of income.   The purebred sector, however, has been, is now, and will continue to be.  Much of the credit for this can go to proactive management of the American Jersey Cattle Association and the Canadian Jersey Cattle Club, who have kept their programs and services "lean and mean" and encouraged original thinking among their membership.   The rest of the credit goes to the Jersey cow herself, who had several advantages the market economics now finds to be valuable.   If you are a competent stockman, don't overlook its advantages.    If you have the inclination, Breeding purebred Jerseys is a sound business decision.