Effect of Milk Market Pricing on Profitability of Holstein Sire Selection and Cost of Selection Error

Abstract

Effects of state milk prices on profitability of sire selection and on the cost of ignoring this information were examined. Net present values of semen were calculated for 393 Holstein sires with available semen after January 1987 USDA sire summary according to a 1:0 milk to type selection policy, 50% conception rate, one generation of descendants in the financial planning horizon, and with a 3% real interest rate. Predicted Differences for dollars and net present values were calculated for sires by region according to appropriate milk price. Regional milk prices were determined as the average of monthly prices for 3.5% milk fat milk for the period December 1985 through November 1986 assuming a price of $3.6O8/kg of milk fat. Milk price was not adjusted for hauling or federal withholding.Sire rankings for both indexes were only affected for states receiving high milk prices. Net present values were calculated for the top 5% of sires selected on PD for dollars. When this group was compared against the top 5% of sires selected on net present value, there was an average opportunity cost of $120 or more across five state milk marketing programs. Using state milk pricing information in the calculation of net present value sire calculations increases producer profitability.