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Considerations For Custom Raising Dairy Heifers

Factsheet - ISSN 1198-712X - Copyright Queen's Printer for Ontario
Agdex#: 412
Publication Date: July 1998
Order#: 98-059
Last Reviewed: July 1998
History: Not Available
Written by: Mario Mongeon - Livestock Specialist/OMAFRA; Jack Rodenburg - Dairy Systems Production Program Lead; Cheryl Russwurm - Farm Management Specialist/OMAFRA; Marlene Werry - Farm Management Specialist/OMAFRA

Table of Contents

  1. Introduction
  2. Considerations For the Custom Feeder and Owner
  3. Agreement Considerations
  4. Types of Agreements
  5. Agreement Essentials
  6. References
  7. Other Relevant OMAFRA Publications

Introduction

The goal of this Factsheet is to outline the business aspects of developing custom heifer grower arrangements for the dairy industry. Custom agreements for heifer raising can have major benefits for both the owner and the custom feeder.

Ontario dairy producers usually manage their dairy replacements by groups:

  1. birth to weaning (0 to 3 months)
  2. transition (3 to 6 months)
  3. growing (6 to 12 months)
  4. breeding to pre-fresh (12 to 23 months).

Each producer can decide which phases of heifer growth may best be accomplished by the custom feeder.

Considerations For The Custom Feeder And Owner

There are several advantages and disadvantages for both the owner and custom feeder to consider when making the decision to specialize the business of raising replacements. Both will need to determine the impact heifer raising will have on their business goals.

Table 1: Advantages and Disavantages for Owner and Custom Feeder in a Heifer Raising Agreement
Advantages
Owner
Custom Feeder
  • decreased labour requirements
  • business opportunity
  • resources used by heifers will be available for milking cows, i.e. feed, storage, labour, facilities
  • use and marketing of forage and grain crops
  • allows herd expansion with less capital investment
  • reduced costs and labour through economy of scale
  • increased milking time devoted to milking herd management
  • opportunity to manage heifers in groups by age and/or size
Disadvantages
  • lose outlet for lower quality feeds & manger sweepings
  • good handling facilities required
  • limits management control
  • increased repair requirements of facilities
  • producer/custom feeder conflicts
  • may play host to heifer owners
  • increased exposure to disease
  • producer/custom feeder conflicts
  • increased cost and risk in transportation
  • increased exposure to diseases

 

Agreement Considerations

A written agreement should be used for the protection of both the owner and the custom feeder. The main benefit of an agreement is to identify the responsibilities of the owner and custom feeder.

The agreement between the owner and feeder should be clear and understood by both parties. Risk and benefit should be assessed before entering into an agreement.

Agreements should also specify growth guidelines (weight, height, and age at end of contract), and indicate fee and payment arrangements. Any written agreement should be done in duplicate, dated and signed by both parties. The checklist on the following page contains a list of items that could be included in a written heifer agreement between the owner and the feeder.

Types Of Agreements

An agreement is a way to document the different expectations that owners and feeders might have. There are several types of agreements that can be drawn up.

  1. Set fee contract agreement.

The title to the animals remains with the owner and the custom feeder is hired to provide the labour, feed, housing and other items for a specified period for a specified price.
  1. Daily charge per head per day.

This type of agreement is common. It has the advantage of allowing monthly billing for cash-flow planning of both parties.
  1. Gain-based agreements.

This type of agreement is more common with beef producers but has merits for dairy heifer owners. Under this arrangement, the owner would pay the feeder per pound of gain up to the optimum weight specified in the agreement.

  1. Feed plus yardage agreement.

Under this type of contract, the owner would pay for feed, plus a pre-set yardage fee to cover labour, overhead and operating costs of the feeder.

Once the type of agreement is decided upon, potential items (as identified in the checklist) should be considered.

Table 2: A Check List of Potential Items to Include in an Agreement

Breeding

Feed

  • AI services
  • semen
  • sire selection
  • heat detection aids
  • pregnancy checking
  • heat detection
  • forage
  • grain
  • protein supplement
  • mineral
  • salt
  • feed additive
  • pasture
    		•

    Veterinary

    General

    • deworming
    • dehorning
    • hoof trimming
    • emergency health care
    • medications
    • parasite control
    • post mortem costs
    • vaccinations
  • bedding
  • identification
  • insurance
  • power/fuel
  • barn repairs
  • maintenance
  • manure handling
  • labour
  • death loss
  • fly control
  • trucking
  • growth monitoring
  • water
    		•

     

    Agreement Essentials

    A written agreement can contain any information desired by the feeder and owner, but a clear understanding of the business factors must be well understood before either sign the bottom line.

    • Payment

    There are probably as many different kinds of payment plans as there are people in business; make sure it is clear!

    • Performance Standards

    Spell out the expectations for age, weight, body condition and other standards. Specify how heifers that do not end up pregnant will be handled.

    For Recommended Growth Standards, refer to OMAFRA Factsheet "Growth Management of Dairy Heifers", Order No. 82-056.

    • Health

    The feeder should provide the owner with details about health care plan designed by the veterinarian. Details about dehorning, breeding, and treatment should be included. Transportation issues should be clearly understood.
    • Death Loss

    There will always be some death losses no matter who is raising the animals. Some agreements assess a per cent loss to the owner and the feeder accepts responsibility for losses above the agreed level. In some agreements in the event of the death of a heifer, the owner absorbs the loss of heifer and the feeder absorbs his costs.

    • Nutrition

    The feeder should have predetermined rations to meet the performance expectations. Table 1 lists the estimated quantities of feed required for each management group but nutritional requirements per day change throughout that time frame. The feeder and owner need to agree about what to do with non-performing animals.

    • Insurance

    Both parties need to determine whose insurance company will cover losses due to a catastrophe. Include a legal description of where the animals will be kept during the growing period (township, lot, concession, civic number) for insurance records.

    • Goods & Services Tax

    While the cost of feed supplied at custom feedlots is zero-rated, other services such as yardage and veterinary supplies and services are subject to GST. If feed is not invoiced separately, custom feeders are expected to calculate GST on at least 10 percent of the total invoice; this applies whether invoices are based on feed plus yardage or on a cost per gain basis. Cattle owners will be able to recover GST as an input tax credit if they are registered for GST.

    • Security

    Custom feeders should consider registering their claim under the Personal Property Security Act. Forms are available at Province of Ontario Land Registry Offices. Completed forms may be submitted for registry at any of the Land Registry Offices.

     

    Table 3. Quantities Useful in Developing a Heifer Raising Budget (Adapted from Ref. 2)

    Budget Items

     

    Management Group

    0-3 months

    3-6 months

    6-12 months

    12-24 months

    Total

    Your Farm

    Milk replacer

    or

    37 Kg

    ---

    ---

    ---

    37 Kg @ $______

    $_______

    Whole Milk

    155 Kg

    ---

    ---

    ---

    155 Kg@ $_____

    $_______

    Calf starter

    120 Kg

    ---

    ---

    ---

    120 Kg@ $_____

    $_______

    Grain mix

    ---

    250 Kg

    350 Kg

    400 Kg

    1000 Kg@$_____

    $_______

    Hay or Equiv.

    10 Kg

    150 Kg

    1100 Kg

    4240 Kg

    5500 Kg@$_____

    $_______

    Pasture

    ---

    ---

    ---

    ---

    ---

    $_______

    Total Feed Cost:

     

     

     

     

     

    $_______

    Bedding (straw)

    100 Kg

    150 Kg

    250 Kg

    500 Kg

    1000 Kg@$_____

    $_______

    Vet. and Med.

    $8.00

    $4.00

    $4.00

    $8.00

    $24.00

    $_______

    Breeding

    ---

    ---

    ---

    $40.00

    $40.00

    $_______

    Utilities

    $4.00

    $4.00

    $8.00

    $15.00

    $31.00

    $_______

    Insurance:

    livestock

    buildings

    $0.50

    $1.90

    $1.00

    $0.60

    $2.00

    $1.20

    $4.00

    $2.40

    $7.50

    $6.10

    $_______

    $_______

    Repairs

    $9.60

    $3.00

    $6.00

    $12.00

    $30.60

    $_______

    Tractor Scraping

    0.25 hr

    0.25 hr

    .5 hr

    1 hr

    2 hr @ $______

    $_______

    Miscellaneous

    $5.00

    $2.00

    $4.00

    $8.00

    $19.00

    $_______

    Mortality

    3%

    1.0%

    0.5%

    0.5%

    5.0%

    $_______

    Estimated labour

    8 hr

    4 hr

    5 hr

    8 hr

    25 hr

    $_______

    Proportional Cost Of Heifer Raising:

    11%

    8%

    21%

    60%

     

     

    Budgeting Assumptions: Weaning at 4 weeks of age; Birth weight is 45 Kg; Utilities include telephone, hydro, fuel; Calving at 24 months; Calving weight is 575 Kg

    References

    Alimentation de la gJ nisse de remplacement: Objectif vL lage B 24 mois. Mongeon, M., CPAG., Symposium des bovins laitiers, pp.23-49, ISBN 2-551-13150-2 1994

    Before You Hire Your Heifers Raised. Hoffman, C. Pat. Hoard's, p.533, 1992.

    Contract Heifer Raising. USDA Leaflet N115.193, (1993).

    Dairy Heifer Budgeting Guide. Manitoba Agriculture Pub. 410-15, 1986.

    Income potential & guidelines for the custom dairy heifer grower. Endsley, J. Atkeson, G.W., Nott, S., Michigan State U. Ag. Economics Staff paper 96-89, 1996.

    L'J levage des gJ nisses: La modJ ration a bien meilleur cout. Pellerin, D. Agri-Gestion Laval, 1993.

    Taures laitiP res. CREQA.MAPAQ. 1989

     

    Relevant OMAFRA Publications

    Charting Heifer Growth. Factsheet Order No. 82-064

    Growth Management of Dairy Heifers. Factsheet Order No. 82-056.

     

     

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