1. Economic Feasibility of Adopting Genomic Selection in Beef Cattle Kenneth Poon & Getu Hailu University of Guelph CAES 2010, Niagara Falls June 18 th, 2010

2. Ontario Beef Sector Beef sector has been suffering from high and increasing input cost Feed cost ~ 70-80% of total expense of beef operation Feed efficiency is a major aspect of beef production Feed efficient herd = environmental herd

3. Measure of Feed Efficiency Residual Feed Intake (RFI) Lower actual feed intake compared to expected intake Correcting for body weight, breed, body fat, etc. Negative RFI = lower than expected feed intake

4. Selecting for Feed Efficiency Feed efficiency expensive and difficult to measure: Require specialized machinery to track daily feed intake BUT Feedlot operators willing to pay premium for feed efficient calves Cow-calf operations likely see higher profits from reduced feed and pasture cost

5. Adopting Genetic Improvement Look at genetic make up of animal to predict characteristics Look at set of mutations (SNPs) compared to a reference population Or inseminate cows with genetically selected bull either with Artificial Insemination (AI) or purchase of genetically selected commercial bull Benefits: ‘Comparatively’ low cost: $50 – 120 per head

6. Genomics and Feed Efficiency SNPs not yet identified, but getting close Where mutations are likely located have been identified (QTL study) Adoption of genomics in beef cattle industry require co-ordination: information infrastructure important for dairy industry pedigree tracking reference herd Flow of information between farms and genetic organizations

7. Research Questions Is genomic selection for feed efficiency financially feasible for Canadian beef sector? For feedlots: what is the max willingness-to-pay for feed efficient calves? i.e., how much will feed efficient calves save in feed cost? For cow-calf operations What would be the change in profit by improving the herd’s feed efficiency (AI or feed efficient bulls)? Reduced feed cost of herd VS Cost of adopting AI, paying a premium to purchase feed efficient bulls

8. Methods Capital budget model of a cow calf enterprise Calculate Net Present Value (NPV) over 20 years with and without adoption of feed efficiency Modeled in Microsoft Excel with @Risk Adopted from Schaufele (2010): simulate cow-calf herd dynamic stochastic cattle prices Addition to model Track animals with and without genetic improvement

9. Cow calf herd structure – feed efficient bulls CullPurchase Sold to feedlot Replacement Heifers BullsCows CullPurchase Weaned Calves

10. Modeling technology adoption Scenario A: Whole-herd improvement Increase in NPV if whole herd require 1 lb less of feed per livestock per day Scenario B: Herd improvement via feed efficient bulls Replaces breeding bulls with feed efficient bulls over time Scenario C: Herd improvement via AI with genetic selected semen Inseminate ‘regular’ cows with semen from feed-efficient bulls via AI

11. Replacement Heifers Weaned Calves CullPurchaseCullPurchase CowsBulls Cow calf herd structure – feed efficient bulls Sold @ premium +$ Sold to feedlot

12. Replacement Heifers Weaned Calves CullPurchase Cows Cow calf herd structure – artificial insemination Sold @ premium CullPurchase Bulls AI Sold to feedlot

13. Data Sources Simulation starting year = 2010 Main data source: AgriProfit$ benchmarking data 2008-2010 average, 36 cow calf operations in Southern Alberta used for herd structure, livestock expenses Koeckhoven (2008) Crop establishment, tamed pasture cost Alberta Agriculture and Rural Development Native pasture cost estimated from AARD Pasture for Rent/Lease Listing Page Livestock prices (2008 – 2010): Agriculture Statistics Handbook 2010 Crop prices

14. Model Parameters Herd Size: 300 cows, 15 bulls (~20 cows per bull) Ration: Barley silage and alfalfa/hay All feed produced on farm, scaled with herd requirement (no sales) Pasture: Tamed pasture: high productivity = 800 ac (fixed) Native pasture: low productivity, scales with herd requirement Model results validates with AgriProfit$ 2010 enterprise budgets for Southern Alberta cow calf operations

15. Base Scenario Results NPV per cow wintered

16. Scenario A: whole herd improvement Substantial  in NPV if all animals are feed efficient by requiring 1lb less of feed a day Increase NPV by $8.74 per cow wintered to $68.22 on feed/pasture cost savings alone A 14.7% increase

17. Scenario B: purchasing feed efficient bulls Gains are substantially lower when not all animals in the herd are feed efficient: Only efficient bulls are bought (@ $0 premium), other purchases to breeding herd are not feed efficient NPV increase by only $1.65/ cow wintered (+2.8%) This is quickly eroded when premium charged by seedstock producers for feed efficient bulls increases

18. Percent of herd with feed efficient trait Start replacing culled bulls with feed efficient ones @ 25% culling rate

19. Premium charged on feed efficient bulls vs NPV NPV per cow wintered as premium charged per bull increases Base scenario @ $59.77 Cost savings = 0 @ premium of $233.08

20. Market for feed efficient bulls Premium of $233.08 represent about 7-8% increase over average bull prices Premium comparable to other selected traits Premium on bulls whose progenies have reduced birth weight by ~10lb is ~$284 (Jones 2008) But… feed efficiency is much more expensive to measure than other traits (e.g., compared to birth weight of progenies) Seedstock producers may charge more

21. Scenario C: Herd improvement via AI Artificial Insemination is costly… Johnson & Jones (2006) suggest average of $67.13 per AI pregnancy + $125 in equipment cost Model results with AI adoption & no feed efficiency gain: 6.93% of cost of production Reduce NPV to $39.41 / cow wintered OR -$20.36 / cow wintered compared to base scenario OR - 34.06% compared to Base Scenario NPV

22. AI with feed efficiency gain If herd were inseminated with semen from feed efficient bulls (assuming progeny has RFI of -1) reduce profit per cow wintered to $42.37 OR -$17.4/cow wintered + $2.96 better than AI without FE gain OR -29.11% in profit

23. AI + premium sales price for feed efficient calves In the absence of a feed efficient commercial bull market, AI may be the only way to adopt feed efficiency for cow calf operations What would be the minimum sales price premium per calf sold required to cover cost of adopting AI for feed efficiency? Increase premium price of feed efficient calves by $X / weaned calf until baseline of $59.77 reached

24. Premium required for feed efficient AI to be profitable NPV per cow wintered as premium sale price per efficient calf increases Base scenario @ $59.77 AI adoption cost recouped @ premium of $42.45 per feed efficient calf Suggested max premium feedlots will pay for weaned calves with -1 RFI

25. Major result Only a ‘small’ price premium for feed-efficient calf sales is enough to make adopting feed efficiency via AI feasible About 34.8% of what feedlot operations suggest they would pay for a 1lb reduction of daily feed intake or About 6-7% increase in average weaned calf prices

26. Caveats to model results There are other barriers to adoption for AI in beef sector Labour intensive: AI system modeled requires estrus synchronization, rounding up herd for insemination in short window AI adoption cost shown to be very high for smaller herds and productive bulls (up to $94.78 per pregnancy; Johnson & Jones 2006) S. Alberta commands high return per cow wintered: North and Central Alberta benchmarking results suggest return closer to $20 / cow wintered Cash flow may be insufficient for AI adoption.

27. Upcoming work Modeling Alberta feedlot model (waiting for more data) Estimate cost saving for feed-efficiency of feedlots via purchase of calves/feeder cattle Check against estimated WTP for feed efficient trait (@$125 for -1 RFI) Adopt model to Ontario (looking for more data) For cow calf - herd size averages ~30 cows: impact of AI adoption/ purchase of feed efficient bulls? ‘break-even’ premiums on calves, bull purchases? For feedlots - require sorting of feed efficient calves / feeders from non-efficient to fully gain benefit of feed efficiency. How would this affect WTP for feed efficient calves?

28. Upcoming work Adopt model to examine feed efficiency and greenhouse gas emission Experimental data already available Major interest in beef sector for reducing environmental footprint

29. Thank you

30. Premium required for feed efficient AI to be profitable NPV per cow wintered as premium sale price per efficient calf increases Base scenario @ $59.77 AI adoption cost recouped @ premium of $42.45 per feed efficient calf