Archive for March 2023

Are dairy genetics a commodity?

For years we have been told that you must invest in the best to advance your herd, but is that true?  What if you could get a sire that is at   97% Rank instead of one that is at 99% rank. Instead of paying $35 a unit, you could pay $8?  That is the magic question many breeders/producers struggle with.

What is a commodity?

First, I guess we must understand just what a commodity is. Wikipedia will tell you that a commodity is an economic good, usually, a resource, that has full or substantial fungibility: that is, the market treats instances of the goods as equivalent or nearly so, with no regard for who produced them. So, in terms of dairy genetics, I guess we could define it as spending money on dairy genetics to come to a point where all the bulls/genetics available are seen as equal or pretty much the equivalent and, also, that minor differences really don’t make a difference to the end result.

Let Xerox show us the future!

To answer the question if dairy genetics has become a commodity let’s look to the photocopying world.  In the photocopying world, at one point Xerox was so dominant that not only did they have the largest market share, but so much so that general slang became to Xerox something instead of copying something.  They had such a technological edge that no competitor could even compete.  But then things started to change. Xerox’s competitors got smart.  Instead of trying to invest billions to try and make a much better copier than Xerox they simply made a copier that was “almost” as good.  Instead of selling it for 90% of the cost of a Xerox, they sold it for 50%.  So sure, it was not a Xerox, but at half the cost to purchase it, it did a “good enough job”.  Its total cost of ownership became way less than that of a Xerox. 

So how did these competitors make money?  Simply they realized that the profits were in the consumables.  Instead of trying to get you to make the big purchase of the unit itself, they simply sold you the unit at the cost of production and then made their money on the consumables which were the ink, and the toner.  Businesses and people were copying so much, or should I say xeroxing so much, that there was more money to be made on the consumables than there was on the actual sale of the unit.

How does this apply to the dairy breeding industry?

The same has started to happen in the dairy industry.  Many of the larger genetics companies using tools like genomics, IVF and sexed semen, have become so efficient at producing sires that are 97% as good, they can sell them at a greatly reduced rate compared to trying to produce the top 1%.  Over the past few years, The Bullvine has begged and pleaded with breeders to not sell females to the AI companies as it would lead to their own downfall.   (Read more Master Breeder Killed in Triple Homicide).

When you combine these factors with economies of scale, you start to realize just how semen companies can sell genetics so cheaply.  It is because many semen companies have become much more than simply semen companies. They have diversified their operations so much that they are not only your genetics suppliers, but they also offer other services to producers to maximize revenue from each producer each time they drive in the lane.  So instead of trying to make a $10 profit from selling you semen, they will try to make a net $10 profit by selling you semen and other dairy-related products. Same net profit just through multiple services instead of just 1 product.  Ultimately, it results in cheaper expenses for producers and fewer vendors to deal with.  So, like our Xerox example, the competitors in the dairy genetics market have changed the game, making it no longer about who has the top-rated product, but rather by offering comparable products at a greatly reduced cost.  They have diversified their operations to make profits on other needs of the producer.

Are the genetics as good?

If you look at the top NM$ Sires, a top 99% ranking sire is about +1036, while a 97% ranking sire is about +965 which is a difference of about +71.   Now by definition, NM$ predicts net profit over the lifetime of the sire’s average daughter, expressed in U.S. dollars.  So, if we say that over the lifetime of the resulting animal’s life, we will see a $35.50 increase in profitability. Considering that the sire would only have a 50% impact on the resulting calf and that you also need to factor in that NM$ is only 80% reliable, the difference in current dollars is $26.34. So, for a current increased semen cost of $27, producers could earn $26.34 over the lifetime of the resulting animal. A cost of $0.66. So, when you factor in the increased cash flow by saving the money now versus earning later you can see why so many numbers-based producers are leveraging the opportunity to purchase a 97% rank sire over a 99% rank sire.

So why would you invest more?

With that, the question becomes should the investment in dairy genetics become just an expense on your general ledger that needs to be made “efficient” or as “low as possible” or is it worth investing your time or energy The real question becomes what are your breeding goals? Are you wanting to get the very best animals you possibly can?  Or would you rather invest that time and effort in other areas of your operation?  If you are willing to take the time to maximize every mating to its maximum potential to achieve the greatest rate of genetic gain, then yes you will see an increased return on your investment in genetics and can swing the numbers in favour of investing more.  But if you would rather invest that time and energy into maximising return on your investment in nutrition or animal comfort, feeling that those areas would see a greater return on your bottom line, then yes purchasing a 97% sire instead of a 99% sire would make sense.

The Bullvine Bottom Line

In the dairy industry, 97% rank sires are now significantly cheaper and easier to produce than a top 1% or 99% rank sire.  This has resulted in dairy genetics becoming a commodity for many producers in the industry.  At the same time, there are certainly those breeders who want to maximize every dollar they invest in genetics and, therefore, will continue to invest in the top 1%. Having said that, for many producers 97% has become good enough and, for them, it makes long-term economic sense that they now consider dairy genetics to be a commodity.  This is not to say that they don’t understand the value of investing in top genetics. It just shows that 97% is good enough. Dairy genetics is a commodity.



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