Allan Barber reports that sharply fewer calves are being sold for rearing this year, the impact of which won't show up for two years. The dairy industry is finding out how much it needs the meat industry

The dairy and meat sectors have long enjoyed a symbiotic relationship in which each benefits from and provides vital services to the other. The most obvious service is where meat processors slaughter cull cows that have exceeded their productive life, mainly during the autumn, while also processing bobby calves between June and September. In return for this service which enables dairy farmers to get stock off the farm promptly, meat companies gain a large proportion of their annual throughput.

Another equally important feature of the relationship is the fact up to three quarters of all cattle processed are actually of dairy origin with probably only a quarter deriving from prime beef. The annual bull kill comprises predominantly Friesian bull calves, while the prime steer and heifer numbers contain a significant proportion of white face dairy/beef cross. It is logical to expect the two complementary industry sectors to work closely together to ensure they each get what they need.

However one part of the relationship is showing signs of strain, probably because it has always tended to work automatically without the need for any outside assistance. This season calves sold for rearing to be sold on to bull finishers at 100kg are anecdotally well down compared to the normal volume. Although there is talk of this every year as a potential problem, the drums are beating louder suggesting this year will be different. For the last five seasons about 550,000 bulls have been processed for export, up by nearly 20% above the level five years ago, but demand from China in addition to traditional exports to the United States has soaked up the extra volume. The market returns are also at a historically high level.

A decline in calf rearing appears likely to cause a substantial drop in bull beef available to supply market demand in two years, while it will be interesting to see if this trend starts to show up in 12 months. Stock agents, meat processors and large rearers all agree fewer calves are being sold for rearing this year, with one estimate putting the decline at 35%. PGG Wrightson Northern regional manager Bernie McGahan told me saleyard calf volumes at Wellsford and Kauri are about half the usual level and prices being paid are below expectations, but yearlings are currently selling well, suggesting the margin was there.

According to McGahan calves are more likely to be bobbied than reared, so he expects a serious drop in trading volumes in 18 months’ time. Waikato regional manager for PGW, Dean Evans, reckons the number of dairy farmers who would normally rear 20 calves is drastically reduced this season because of increased costs and a shortage of staff. Over the last two years he confirmed rearers have not received enough money for 100kg calves for which they wanted contracts at $540-560, although the asking price in the Waikato is now at $580.

Deb Kirkham from Waikato based Kirkham Group Dairy and Rearing is more optimistic, saying there aren’t as many rearers around this year, but they have had more enquiry for contracts than last year at higher prices; that said, the extra money will be eaten up by higher costs. Kirkham Group rears 30% of its calves from its own herd and buys in the balance, but she wonders whether more dairy farmers will have to decide to add a beef finishing leg to their business to offset the reluctance of finishers to commit. According to Kirkham there is a definite advantage to rearing from their own herd.

She also reports a trend to more beef calves early in the season, compared with traditional practice of a beef bull covering the tail end of the herd. This is also consistent with Southern Pastures’ contract with LIC and Rissington Cattle Company to increase the percentage of calves with superior genetics for prime beef production to more than 50%, compared to less than 10% at present. The purpose is to reduce wastage and increase profitability by ensuring every calf born will be channelled towards its most productive outcome.

This matches Fonterra’s objective of ensuring all non-replacement calves enter a value stream – beef, veal or petfood - instead of being euthanised, with a particular emphasis on the potential for using Wagyu beef genetics to meet demand for high value beef. According to Charlotte Rutherford, Fonterra’s director of on farm excellence, the cooperative “will also be providing farmers with information about other tools which can increase the value and/or optionality for non-replacement calves, such as sexed semen and rearing or selling calves to meet the demand for rose veal.”

There is clearly quite a bit of work going on to address the problems of too many unwanted calves and reluctance to pay a realistic price for calves either to rear or finish, but it will take quite some time for enough dairy farmers to adopt the benefits of high value beef production. In the meantime, if market forces behave as usual, the immediate problem will resolve itself next year or the year after, when presumably the current shortage will result in finishers being prepared to contract for supply at a realistic price.

Meat processors also play a substantial part in processing bobby calves, but this year labour shortages have reduced capacity which in many plants must also process lamb and mutton on the same chains, both to satisfy market demand and loyal supplier needs. At least two major processors have refused to accept any new suppliers which will place serious pressure on dairy farmers who traditionally rely on being able to get calves taken away when they wish.

Fonterra says it is working with the MIA and Beef + Lamb with the aim of “aligning processing capacity with demand and maintaining continuity of service”, although the challenging environment makes this problematical. The dairy industry might be about to discover just how much it depends on the meat industry, a fact the latter has known for many years.

Current schedule and saleyard prices are available in the right-hand menu of the Rural section of this website.