U.S. Dairies Bet on Beef

Dairy farmers are seeing huge payouts for beef-dairy crossbreeds amid a major beef shortage and bottomed-out milk prices.

Jim Van Patter’s operation in Wisconsin is flush with cash but losing money on milk. At best, the 2700-head dairy he manages in Wisconsin, Nehls Bros Farms, has been breaking even on its central product since milk prices bottomed out in 2023. But Van Patter, like many U.S. dairies, is keeping things afloat thanks to an unlikely buyer — the beef industry.

Five years ago, Van Patter exclusively raised, managed, and sold dairy animals. But today, half the calves born at Nehls Bros Farms — about 1500 animals — are part beef. The Holstein-Angus crossbreeds are known in the industry as beef-on-dairy and the drought-depleted beef industry is buying them up for a whopping $800 per animal, nearly seven times the value of a dairy calf.

“The [beef cross] calves and culled cows were the only thing turning a profit in the last year,” Van Patter said. The fast cash has dairy producers devoting as many as 70% of their calves to beef crossbreeds, creating the lowest dairy heifer supply in 20 years, and more than tripling the sale of beef semen in the U.S. Experts estimate that beef-on-dairy currently makes up 25% of the U.S. beef supply. In 2024 the most successful dairies are the ones who have aptly adapted to the livestock market.

“Every dairy is a beef cow eventually,” Van Patter said.

That’s always been the case. Dairy animals were in the beef supply well before the recent surge in crossbreeding. Holsteins, mostly culled cows and steers, traditionally make up 20% of U.S. beef. Compared to traditional beef, these calves were sold for rock-bottom prices, needed twice as long on feed, and produced smaller cuts of meat. But in the last six years better breeding technology, packer demands, and a massive drought in cattle country have created an opportunity for dairies to offer a more beef-like animal just when the beef industry needs it.

“With the lowering milk prices, especially the last year, these beef cross calves have been what’s sustaining the dairies,” said Kolton Kreitel, manager of Fullmer Cattle Company, an 80,000-head calf ranch in Syracuse, Kansas.

Calves are a byproduct of mass-producing milk, and Kreitel is in the business of managing that byproduct. His facility takes in dairy calves from two days old so farmers can devote their cows to milk production. But in 2018 a customer called with an unexpected request: Would Kreitel be willing to raise beef crosses instead of dairy animals? The first hundred calves — shorter and blacker than normal — stumbled into his receiving pen a few weeks later. Within a year “it was black calves everywhere,” he said.

Better breeding technology led the pivot into crossbreeding in the mid-2010s. Each year dairymen breed every animal to keep milk production going, but they only need to keep approximately 40% of the calves to replenish their herd. As sexed semen became more reliable and affordable, farmers gained more control. They could almost guarantee their best cows and heifers would have a female calf. But that also meant they didn’t need a calf from the majority of their herd. That’s when genetics companies started suggesting beef semen, Van Patter recalled.

But the change really started when the major meat packers weighed in back in 2018, according to Ty Lawrence, professor of animal science at West Texas A&M who collaborates with the four major meat packers: Tyson, Cargill, JBS, and National Beef Packing Co. “This began with Tyson, who was the first packer to say, ‘We don’t want to buy a Holstein anymore,’” he said.

Once packers took their stance, the market for purebred dairy calves dissolved while the hybrid price increased. The crossbred calves proved to have some advantages. Thanks to their hybrid vigor they have lower disease rates. Their meat quality grades are higher because of the superior marbling that comes with their dairy genetics. And they put on more muscle with less feed compared to pure Holsteins - thanks to their Angus ancestors.

By 2020, a survey of California dairies showed the crosses were commanding twice the price of a Holstein. Van Patter was making $200 on a cross compared to $50 on a Holstein. Then the beef shortage hit.

In January 2023, Kreitel, who was accustomed to paying $200 a head for beef-on-dairy, got a call from a customer who said they’d been offered $300. Appalled at the sudden hike in price for a calf only 24 hours old, Kreitel declined to match it. But the market soon made it clear that the value of all beef was on the rise.

Droughts across U.S. cow country forced beef producers to sell off their herds because they didn’t have the grass and forage to sustain them, said Pedro Carvalho, feedlot specialist at Colorado State University. By summer 2023, the price of a day-old beef-on-dairy was up to $600. In spring 2024, with the native beef herd at its lowest since the 1950s, Kreitel bought day-old crosses for $800 and sold them at 450 pounds for $1600.

“That’s a nice profit margin,” Van Patter said. But it’s easy to get carried away. He has seen some of his neighbors liquidate too much of their calf crop to beef-on-dairy for the quick cash. They won’t have enough replacement heifers when milk does rebound.

And what happens when the beef numbers rebound? “That’s the million-dollar question,” Carvalho said. Experts from different parts of the industry disagree on the future of the crossbreeds.

Carvalho said prices for crosses, and all cattle, will dip when the beef herd rebounds, but beef-on-dairy will still be of high value. They even have the potential to produce high-quality meat more efficiently. 

“If packers didn’t have to buy them today, they wouldn’t,” Lawrence said. “There just aren’t enough cattle to avoid the dairy crosses.”

The beef herd’s rebound is likely still years away. 2024 projections say the U.S. beef supply is likely to decline further, so beef-on-dairy — and all cattle for that matter — are expected to continue to demand a high price for the next couple of years.

“Once the drought subsides, these critters will have less value,” Lawrence said. “It will not go to zero. It will just be less.”

EDITOR’S TAKE:

Good, bad or indifferent, this article demonstrates just how well and how rapidly farmers/ranchers adapt to ever-changing market signals. The ups and downs in market cycles, such as the reduced beef herd coupled with lower milk prices, presented opportunities for change. At this point, no one knows for certain how permanent such changes will be, but for the time being it is a boon to beef producers who are short of replacements. It helps dairy farmers who have struggled with lower milk prices. And, it helps consumers battling record high inflation.

Adapting to markets is also nothing new for truck dealers. With rising inventories, more competition for sales, and consumers often living paycheck to paycheck, maybe now is a great time to make sure you really focus on that farm/ranch customer. Put them at the top of your customer prospect list, get your inventory on AgTruckTrader.com® where they can see it, and make sure you emphasize all the programs like CADFI, CAD Protect and AgPack® that are designed specifically for them.