Use of Profit Equations to Determine Relative Economic Value of Dairy Cattle Herd Life and Production from Field Data

Abstract

Profit equations or functions that reflect the realized profitability of cows have been used in the literature to determine the relative importance of different variables such as milk yield and herd life. In all profit equations, the opportunity cost of postponed replacement, which reflects the profit sacrificed on an average replacement cow by keeping the cow, has been omitted. In this study, three profit equations were compared: total lifetime profit; total lifetime profit accounting for opportunity costs, and profit per day of herd life. Linear regression was used to determine the relative value of first lactation production and herd life on profitability in simulated data. When accounting for opportunity costs, the value of an additional day of herd life was equal to that of a 4.0 kg higher first lactation milk production. The relative value of herd life was overestimated by 260% when opportunity costs of postponed replacement were not accounted for. The need to account for the opportunity cost of postponed replacement in calculating economic weights is clearly demonstrated. © 1991, American Dairy Science Association. All rights reserved.