The Moos Room™

00;00;11;03 - 00;00;38;10
Brad
And welcome to the Moos Room today again. It's just Brad. Yes, Jim. Software and I tried to figure out where Emily was last week, but we did not find her. And she is still Mia. And one day she will be back. One day she will be back. Who knows when? Who knows? So if you have seen her out and about in Minnesota doing lots of extension programs, you can let me know and see if I can hunt down.

00;00;38;16 - 00;01;06;24
Brad
But we have a guest again today and I'm excited, for, this guest and for you to learn about what she's done. And it's actually, she's from Minnesota as well. So all these wonderful Minnesota people, not nothing against anybody else, but, Rebecca, we're. And she's from actually she's at Penn State right now. But welcome, Becca.

00;01;07;01 - 00;01;09;14
Becca
Thank you. Brad, thanks for having me on the podcast.

00;01;09;14 - 00;01;16;24
Brad
So you are, Minnesota born and raised from Sauk Center, Minnesota.

00;01;16;27 - 00;01;17;10
Becca
Yes.

00;01;17;17 - 00;01;24;27
Brad
So, well, tell us a little bit about what, your your growing up's in wonderful central Minnesota.

00;01;25;00 - 00;01;49;02
Becca
Yeah. So I grew up on a, a dairy farm in central Minnesota. So as Brad mentioned, in Sauk Center. So our farm actually wasn't quite in Stearns County. So for those of you that are listening that are familiar with Minnesota, you know that Stearns County is our top, dairy county within the state. So our farm was actually in Polk County, right on the other side of the county.

00;01;49;02 - 00;02;10;06
Becca
The, the county border. So I grew up, you know, we had an 880 cow ty style barn. So I grew up milking the cows with my mom and dad, you know, driving tractor, feeding the cows, all sorts of things. And a lot of that's really facilitated, some of the research and my interests here and my career as an economist.

00;02;10;06 - 00;02;11;14
Brad
Is the farm still going?

00;02;11;14 - 00;02;41;12
Becca
No. Well, the dairy part has been sold. So about two years ago, my or almost three now, I think. What's going on three years, my youngest sister graduated high school and went off to college. Therefore, you know, the last unit of labor was leaving the farm, right? So therefore the cows also went. So my parents sold the dairy herd, but they still have about 650 acres of cropland, corn, soy.

00;02;41;12 - 00;02;52;01
Becca
And then they're raising bull calves from the local dairy ancillaries. And I'll beef. So there still are some cows, just not the same. They're just not the dairy cows. Yeah.

00;02;52;01 - 00;03;07;12
Brad
Right. Right. And that is always, a, I shouldn't say it. It's a challenge. When the labor leaves, it gets tough for, some generations to continue on. It's probably it's a story that we hear many times over.

00;03;07;15 - 00;03;20;22
Becca
Yeah. And it's not it's not going away anytime soon. It's across the nation, different family farms looking at different technologies or ways to alleviate some of that labor, that, that constraint on the farm.

00;03;20;24 - 00;03;41;18
Brad
Okay. Well, before we get too far in, there are super secret questions, which you probably already know, but that's okay. So of course, our listeners always want to know what people's favorites are. So what is your favorite breed of beef cows?

00;03;41;21 - 00;03;59;15
Becca
So I did cheat and I listened briefly to the last episode, so I was prepared for this question. But for my favorite breed of these cows, I would say the beef on dairy. So the Angus Hulsey mix that's been recently, a recent trend in uptake and in the area.

00;03;59;16 - 00;04;28;26
Brad
That that is acceptable even though. Yes. Well, we'll we'll take that. We'll take that today. That that is it is growing. It is definitely growing. And there you're seeing a lot more of those here in the Midwest and even in the northeast. Okay. So we'll run down the scores again quickly. Black Angus 19, Herford 14. Black barley five.

00;04;28;26 - 00;04;49;13
Brad
Scottish Highlander five. Charlie four. Red Angus five. Shorthorn three. Simmental two. Belted Galloway and Brahma two and a whole host of other breeds. Lots of other breeds, with one not going to read those all off today. But while, so obviously the next question what is your favorite dairy breed?

00;04;49;14 - 00;04;57;20
Becca
Got to go. Holstein. That's what the farm was goat growing up and that's what I most mostly accustomed to is the whole scene, the standard Holstein cow.

00;04;57;23 - 00;05;23;13
Brad
Okay. We'll let it slide today. What I usually do most days, the rundown Holstein 29 still in first place, which you would probably expect. Jersey 20, Brown Swiss 13, Montpelier three. Dutch belted three Guernsey three, Ayrshire three, Milking Shorthorn three and Normandy two. If anybody wants any other breeds, feel free to let me know and we'll, have you on the podcast.

00;05;23;13 - 00;05;47;24
Brad
We can talk about, lots of different breeds of dairy cattle. Okay. So back to, why you're here today. Basically, you're you're you did your graduate degrees at the University of Minnesota with, Jolene Heydrich. And we've had Jolene on the podcast before. It's been a while, to talk about dairy profitability and farm profitability. I think it's been a couple of years since she's been on the podcast.

00;05;47;24 - 00;06;19;05
Brad
You know, she's associate dean of lots of different things. And and my, my officially my boss. And so she's very busy. And, maybe we'll get her on once. Again, but doesn't do as much in the dairy world. But you worked with her on lots of different applied econ stuff in the dairy world. So why actually, first question, why did you really want to study applied econ in in dairy or dairy economics?

00;06;19;07 - 00;06;55;05
Becca
Yeah. Great question. So growing up on the dairy farm, I initially was like, I'm good. I'm going to find a career in a different field. But ultimately, like through my undergrad studies, I decided that, you know, agriculture actually is super important to me, specifically my love for the dairy industry. And one way that I got to still pursue that passion and love is through, like my degrees, in applied economics, doing agricultural economics stuff and all of my research so far has been dairy focused, which has been really great that I've had that opportunity to so focus on that area.

00;06;55;08 - 00;07;16;26
Becca
And working with Jolene, University of Minnesota the past, I guess it was about five years for my master's and PhD. It was a really great experience, like learning from someone that knows the industry super well is she's also from Minnesota. She she's from Stearns County. So, you know, across the county border from where I grew up. So learning from her was a really valuable experience.

00;07;16;28 - 00;07;43;24
Brad
Okay. Well, let's get into the meat of your of of what you found. I thought it was quite fascinating. So basically you were looking at farm profitability on Minnesota dairy farms. I think here at Minnesota, we're very lucky, I should say blessed, that we have a center for farm financial management that keeps track of a lot of records for, well, dairy farms as well as a lot of other farms, crop, different livestock farms.

00;07;43;24 - 00;08;08;18
Brad
So we have a lot of data that we can analyze from a farm profitability level here in Minnesota. So we're we're very lucky and blessed with that anyways. But I worked with a few researchers, in Minnesota and at Penn State to look at how sire net merit. So this is our genetic selection index that we use here in the U.S..

00;08;08;20 - 00;08;27;08
Brad
How does it sort of estimate lifetime profitability and how does it relate to profitability in Minnesota dairy herd. So what was the big reasoning. Why why you wanted to look at that? Or how how did this sire and net merit come into play with seeing how that relates to farm profitability?

00;08;27;13 - 00;08;53;04
Becca
Yeah. So a big thing on farms is management strategies, right? Like farms are continuing to find that extra time, find that extra piece that they can make a little extra bang for their buck with their investments. So we were interested in seeing is investment in genetics paying off. How if I invest in my herd, if I have these higher genetics, this higher genetic composition herd, how does that relate to my end profitability?

00;08;53;06 - 00;09;14;08
Becca
So that was really the main reasoning is just seeing like what this DNA is this a really effective management strategy for producers who are like how can we how can we inform them based on the information available to like, leverage the data that's available and provide management strategy surrounding that with looking at sire. Net Mary. That's that's the bull genetics.

00;09;14;08 - 00;09;31;18
Becca
Right. So we producers are able to select this and they have more variation that they can pick these genetics. Whereas we assume that your female genetics but the herd are pretty thick. So that's why we're focusing on the sire that merit rather than looking at the genetics of the females or the cows of the herd.

00;09;31;21 - 00;09;56;19
Brad
So you looked at Minnesota dairy herds from about 2012 to 2018. And I think one of the interesting factors which you didn't settle on, sort of herd size was all over the board. So there were small herds, medium size herds, and large herds in this data set. So we're not necessarily so we think we can generalize this across all of the dairy herds, you know, in the US.

00;09;56;19 - 00;10;18;08
Brad
Because obviously there's lots of different sizes in the US. So you basically you you get data from farm financial Management system. There was production data that we got from basically Dia records and you got sire to so predicted transmitting abilities for net merit and some of the other traits. So we'll, we'll talk about some of the other ones.

00;10;18;08 - 00;10;30;05
Brad
Obviously the study focused a lot on net merit, but some of the other traits were sort of an indicator of that. So what were the key measures that you wanted to look at in in this study?

00;10;30;08 - 00;10;53;01
Becca
Yeah. So we started out simply looking at the net merit index. And I'm going to back up my set up, and give you really define what the net index is and how it's used. So it's a genetic index and it's based on weight. It's a weighted average of economically relevant traits. So it includes things like milk production, butterfat production, productive life, different health traits.

00;10;53;01 - 00;11;17;25
Becca
So there's a lot of different traits that go into making this index. And the number of traits vary by breed. So for Holsteins there's 39 different traits that are considered. And with this so it to interpret it. So it's the expected lifetime profitability of a dairy cow. And what it does is it finds a reference or a base a base group to to rank cows against.

00;11;17;27 - 00;11;45;08
Becca
So cows could have a net merit, for example, of $40, which means that based on the average cow. So like so for my data, our reference group was, the average cow born in 2015. So if a cow had a net merit score of $40, that would mean that that cow was expected to be $40 more profitable across its life's lifetime relative to the average cow in 2015, and similarly so these some cows could have a negative net merit.

00;11;45;08 - 00;12;07;09
Becca
So that's also plausible. Where like if a cow is expected to be less profitable than the average cow in 2015, then there it's possible that the net market valuation could be negative. And this net merit index, it's updated. So it's doing releases annually. So it's April, August and December that there will be updates that they'll, you know, gather all the data that's come out.

00;12;07;09 - 00;12;17;17
Becca
And we basically resort those sires. And then every 3 to 4 years there will be a larger, revisit of that index.

00;12;17;19 - 00;12;24;26
Brad
What were you using to determine the profitability of, of these farms, and how did you go about that?

00;12;24;29 - 00;12;48;10
Becca
Okay, great. Yeah. So we were looking at the the profitability. All that financial data came from the center for Farm Financial Management. It's been data that Brad's been alluding to. And we had the farmable records. So we were able to look specifically at like, what is the farm's operating profit margin. You know, how much of the revenue that the farm is generating is actually being retained as profit on the farm or the rate of return on assets?

00;12;48;10 - 00;13;10;19
Becca
So what is that return on the investments in the what is that percentage return on the investments in the farm? We also looked at net farm income as a measure of profitability. However, you know, different farm pipes, different farm sizes can vary substantially and especially, you know, year to year with market conditions that farm income can be huge one year and then significantly down the next year.

00;13;10;19 - 00;13;42;25
Becca
Just giving, you know, milk prices, feed prices and things like that. So we also standardized up measure. So we looked at net farm income on a per cow basis. So in total we looked at you know four different profitability measures. The operating profit margin rate of return on assets, net farm income in the net from income per cow to kind of look at, you know, how is how is not married related to each of these, but also look at like each of these individually, but also more broadly a full measure or a full like holistic view of the profitability of the farm.

00;13;42;28 - 00;14;10;23
Brad
Okay. So what did we find? Says $100 increase in sire net merit was associated with $12,000 increase in net farm income and about $87 per, cow. So net farm income per cow $87. So was this expected? Did you expect this or didn't really know what how how net merit played a role in profitability of of cows or farms.

00;14;10;26 - 00;14;36;00
Becca
Yeah. So I mean ideally we expected that there would be a positive association. Right. Like if I'm investing in genetics, you expect that there's going to be a payoff for that investment. And it did. Right. So we saw that positive significant associations. We saw you know increasing my net Mary is increasing my profitability. You know, whether it's the net farm income, the rate of return on assets or the net farm income on that per cow basis.

00;14;36;03 - 00;14;57;27
Becca
And we actually saw a result that was larger than we expected. So I want to make it super clear that like when we're looking at net merit, this is on a lifetime basis, but our profitability, these are annual measures. So we can break down that net merit index. There's an assumption that the cows will have 2.69 lactation on average.

00;14;57;29 - 00;15;18;23
Becca
So if we divide that through we actually see that we have a higher than expected return. So if we if we divide, you know, a $1 increase in net, Mary, it would be a $1 increase in profitability if we divide that by the number of lactation. So to 2.69 our expectation would be that per lactation the cow should.

00;15;18;25 - 00;15;40;01
Becca
So like a $1 increase in net merit on a per lactation basis would be a point, .37 increase in profit. So our, .87 or that $87 is actually much higher than expected, which is great. So we can see that, you know, we actually see a larger return, that expectation.

00;15;40;04 - 00;16;06;13
Brad
That's great. That's great. I think genetics plays a role. Obviously. Net merit probably found only about maybe a 3%, kind of explain the profitability on farms. But it obviously it shows you that there's, you know, genetics is not the only or the main driver of profitability on farms, but it plays a significant role in, in increasing profitability of cows or farms.

00;16;06;15 - 00;16;25;27
Becca
Yeah, it's certainly one piece of the puzzle. And as you said, it's only accounted for 3%, which some might think that's not a large proportion. But when you think about the general market conditions that are driving a massive proportion of that, it really like genetics are and are an essential part of the operation to be managed.

00;16;26;03 - 00;16;49;12
Brad
So let's talk about farm sizes. So you kind of broke down small farms. So less than 100 cows kind of had medium farms, 100 to 200 cows and then larger farms. What what do we find on farms. Was this, you know, did one farm size do better or were they all about the same or or how did farm size play a role into, you know, profitability?

00;16;49;14 - 00;17;12;21
Becca
Yeah. So, I mean, the broad takeaway from this part is that regardless of your farm size, there's there are different areas of your profitability that were impacted. So it wasn't the same across the board or it was every profitability measure was seeing improvements. But there were different areas based on your respective herd size that you could see improvements from.

00;17;12;23 - 00;17;18;13
Becca
So as a takeaway, regardless of your farm size, this can be an effective management strategy.

00;17;18;16 - 00;17;42;19
Brad
Now you also looked at some individual traits. So I know even as a geneticist myself, we tell people not to look at individual traits because it sometimes it well, it can move things awry quite quickly if you select, for individual traits and you if you select for one trait, you might not realize you're selecting for another trait and screw up a couple things.

00;17;42;19 - 00;18;05;24
Brad
So obviously we tell you to select for merit. But you looked at a few traits, at least some of the ones that I found. So livability. So, you know, a measure of whether the cow really dies or not obviously had was positive for all profit ability measure. So if if your cows stay alive you're going to be more profitable.

00;18;05;26 - 00;18;14;04
Becca
Yes. Which is it. As expected. Right. Like it's not a surprising finding right. It's a finding nonetheless that can be proven with the data.

00;18;14;04 - 00;18;39;20
Brad
Right? Right. And I sometimes think that we cows die on farms. We all know that. But I think if you have a higher death loss on farms, you're probably less profitable than if you got cull value basically out of these cows. So what a couple other traits. So obviously milk and protein yield was associated with increased net farm income, which you might expect that maybe.

00;18;39;22 - 00;19;03;17
Brad
You know I don't want to say more milk production equals more profit. But sometimes it does. Depending on the herd size. And one other thing that I found was interesting is that milk fever resistance. So milk fever resistance was positive for most of the profitability measures. So if you have less incidence of milk fever in your herd, more profit.

00;19;03;20 - 00;19;12;21
Brad
What why is that. Why did milk fever come out. You know, you would think that some of these other diseases, might come out, but why might milk fever show up?

00;19;12;23 - 00;19;35;15
Becca
Yeah, that one was really interesting. Where? So, I didn't mention, but there's a lot of different health traits that are included. So retained placenta, ketosis, mastitis like resistance of these to other diseases. But the only one that really came up as significant was the milk fever resistance. And there could be a number of reasons why, you know, if you're not, I mean, and any of the diseases.

00;19;35;15 - 00;19;55;11
Becca
Right. Like, if you're not developing these diseases, there would be more profitability or likely more profit within the farm. So it's not super clear to me as to why that one came up as significant or the other ones didn't. But more broadly, when I looked at those individual traits, there were very, very few that held any sort of significance.

00;19;55;11 - 00;20;14;09
Becca
So I think you point out the the only ones that did and as I mentioned earlier, there were these 39 traits. So Brad didn't just rattle off 39 traits. And I will give the caveat. I do not have all of the traits within my data. So conformation or type traits I don't have, but I do have 18 of them.

00;20;14;15 - 00;20;48;28
Becca
And Brad rattled off just I think four that we talked about so broadly speaking. And as you were alluding to Brad, it's much more effective to select your genetics based on that, that merit index, rather than selecting out a specific trait. You know, your farm could have a mastitis issue that you're selecting for cows that are more resistant to developing that disease or to developing an incidence of that in aggregate, on average, it's much more effective to select, the that index, that economic index rather than to select on an individual trait.

00;20;48;28 - 00;21;12;04
Brad
Really, I think one of the things that seemed most consistent within your study was the longevity trait. So productive life livability, heifer livability, obviously those were most, linked with profitability. And you would expect that the the longer productive life, if your animals stay alive, you have healthy animals, you're going to be more profitable.

00;21;12;04 - 00;21;14;00
Becca
Exactly, exactly.

00;21;14;00 - 00;21;32;09
Brad
So what are the main takeaways. What. So you've done all of this study. What what are the takeaways for the dairy farmer or people in the industry. But what should they know and how should they go about using the information from your study to improve the profitability of their farms?

00;21;32;12 - 00;21;50;29
Becca
Yeah. So I think there's a few key things that we can really highlight from the work that was done. So the first thing is that investment in genetics is worthwhile. So we saw that, you know, an increase increasing your herd number. It was associated with increases in profitability for, you know, your rate of return on assets, your net farm income, the net income per cow.

00;21;51;01 - 00;22;17;03
Becca
And that that was a larger than expected return. Another key takeaway is what we just talked about with the traits versus the index. So as a producer, like on average, it's much more effective to select your, genetics based on that index compared to selecting on a specific trait, despite whether your farm has a certain certain issue on the farm that they're trying to alleviate through the use of genetics.

00;22;17;03 - 00;22;40;15
Becca
Another key pieces that with taking these results, it's important to keep in mind that these are based on the average farm and your farm. No farm is the average farm. All farms differ and are unique in their own way and their own management strategies, and how producers are going about operating and managing their productions. So genetics truly are just one piece of the puzzle.

00;22;40;15 - 00;23;06;23
Becca
When we're looking at profitability, there's a number of different things that producers can, a number of different strategies that can enhance a farm's profitability and genetics is one of them. As I mentioned, market conditions are a huge, huge piece of that puzzle. If the milk price skyrockets or drops substantially, that's a lot like same thing with feed prices like input output prices are a huge piece of profitability.

00;23;06;29 - 00;23;40;21
Becca
And genetics are again a smaller piece of that puzzle, but an important one nonetheless. And lastly, just I just want to highlight that management in the economic environment we're in today is is increasingly important. Margins are getting tighter. Volatility within prices and different characteristics of the industry makes it that much more important to find this extra piece where you can drive just a little bit more efficiency in your cattle, get a little bit more out of your out of your inputs, out of your assets to drive a little bit more, output from them.

00;23;40;24 - 00;23;57;01
Brad
To me, I like, you know, I always like genetics and how genetics plays a role in profitability on farms. So it's always nice to see those studies happen that show that, yes, genetics does pay for itself. And you should invest in good genetics, on farms.

00;23;57;03 - 00;24;15;16
Becca
Yes. I always think it's important as an economist, I'm like, take it the next step. Are, you know, our our dairy scientists are geneticists are showing us look at these genetics are cows are making more milk. But taking it that next step and like making sure it's applicable and feasible for the producer from an economic lens is also incredibly important.

00;24;15;16 - 00;24;19;00
Becca
So it's really fun to kind of tie those together with this project.

00;24;19;00 - 00;24;42;24
Brad
Okay. Well, one thing that we we didn't say at the beginning was, so Becca has just started at Penn State, like you're a newly minted egg economist, PhD at Penn State, trying to figure out what to do for your research and extension program. So yes, it's it's always good. So where where does that lead you into the future?

00;24;42;24 - 00;24;47;00
Brad
What what are you interested in and what are you going to look at it at Penn State.

00;24;47;03 - 00;25;08;11
Becca
Yeah. Thanks, IRA. So as I just mentioned, I just joined the faculty at Penn State. So I'm an assistant professor and at, agricultural economics. And and I do have an extension position, which is exciting to get to do that outreach with producers. So a lot of my work is going to be very similar to the stuff that I was working on as a grad student at Minnesota.

00;25;08;11 - 00;25;31;22
Becca
So looking at farm management questions, I'm policy and finance, looking at risk management, you know, what are some of these strategies that producers can continue to adopt to maintain that economic viability within the industry? And one of my other key projects that I've been working on recently is looking at the Dairy Margin coverage program. So looking at this risk management strategy, this federal program that's available.

00;25;31;22 - 00;25;44;03
Becca
So expanding on that a little bit and continuing to advance the economic viability of the dairy farms, within Pennsylvania and also beyond the borders across the nation.

00;25;44;05 - 00;26;08;16
Brad
I think that's great. I think that we need more people working in dairy economics that can actually translate it to farmers. And because sometimes, yes, we all get, you know, economics. And most people like, oh, man, we don't understand that. So I'm glad that you're able and and willing to work and have that extension appointment to work with farmers and be able to bring this information to them so they can help improve their, their farms and their profitability.

00;26;08;16 - 00;26;29;22
Becca
Yes. It's a it's an exciting place to be in. And one of the key pieces right now is just figuring out, you know, what's going on in the dairy industry in Pennsylvania, figuring out what are those nuances like finding like similarities and differences from what I'm familiar with in Minnesota and just a lot of learning right now as far as what programing we have here through extension and what are some gaps that I can fill with my skillset.

00;26;29;24 - 00;26;42;08
Becca
So it's definitely exciting to be in the extension world and I'm excited to really get that started over the next, you know, several years. But we're we're about three weeks in, so just just dip in my toes. And so far.

00;26;42;10 - 00;26;59;16
Brad
Well that's good I think, I'll be excited to follow you. I always enjoy working with, you know, I worked with Jolene. You're at your advisor for quite a few years, and dairy economics stuff, so it's always fun. And I certainly will be watching you and and learning about what you're doing in Pennsylvania as well. And I'm sure it will.

00;26;59;21 - 00;27;02;28
Brad
It will help farms here in the Midwest or around the world.

00;27;02;28 - 00;27;07;16
Becca
Yes. Thank you. It's very transferable across across farms.

00;27;07;18 - 00;27;34;01
Brad
Okay. Well, I hopefully, you've learned some things today and learned about a little bit about farm profitability and how genetics plays a role in increasing farm profitability. So we thank you for joining us today. It was a wonderful study, and we will certainly be looking forward to what you're doing out in Penn State. And feel free to join us here in on the Booth room or in Minnesota again anytime.

00;27;34;03 - 00;27;35;18
Becca
Thanks, Fred. Thanks for having me.

00;27;35;18 - 00;27;57;27
Brad
And with that, if you have any comments, questions, or scathing rebuttals, you can contact Emily. And if you find her, you can invite her back to the podcast. So, but with that, I think we'll leave today. If you have any other questions or comments, feel free to find us on the web. University of Minnesota Extension or University of Minnesota Livestock Extension.

00;27;57;29 - 00;28;03;21
Brad
And with that, I hope you have a good day. Bye.