No Bull: Cattle Breeding for Investors

The growth of artificial insemination (AI) as a tool for improving the genetics of cattle herds has opened up new opportunities for agricultural investors. There are many ways …

The growth of artificial insemination (AI) as a tool for improving the genetics of cattle herds has opened up new opportunities for agricultural investors.

There are many ways investors could profit from the AI industry, including starting an entire cattle operation. But the purchase of genetically superior bulls or genetically superior heifers or cows—heifers are female cattle who have not produced offspring while cows are female cattle who have—to sell their wares, whether semen or embryos, to interested herd owners is a particularly interesting, though risky, strategy.

Cattle farmers have been using AI to assist in producing the best calves for dairy and beef production since the 1930s. While AI was originally out of reach for most cattle operations, improvements in technology allowed herd owners to breed their cows using the cream of the cattle crop.

Investors can choose to purchase purebred stock and raise replacement animals that can be used as AI studs or to produce embryo transfers. Embryo transfers are created from particularly genetically desirable cows who have hormones injected to produce multiple eggs, which are then inseminated, isolated and transferred to surrogates. Both AI and embryo transfers multiply the offspring from good cattle and can improve the genetics of a herd.

Various veterinary groups have been assisting AI operations by offering genetic testing, called Bull Breeding Soundness Examinations (BSEs). BSEs determine which bulls will produce offspring with certain characteristics, such as more meat and less fat per rump roast or better quality and quantity of milk production.

“The way they test bulls is that if they have really good genetics and then they distribute his semen through the Young Sire Testing Program…his daughters will be looked at in terms of their performance…and that will enable you to develop genetic estimates of his potential worth,” Alison Van Eenennaam, a University of California Davis Cooperative Extension specialist in animal genomics and biotechnology, said.

“It’s a multimillion dollar process to get to that stage,” she said. “I think only one bull in ten makes it through that stage, and then you’ve got a lot of money invested.”

For farmers, the price of a semen unit—called a straw—ranges from a couple of dollars to $50 per unit, according to the Associated Press. An average dairy bull produces 10,000 daughters and 10,000 sons during his lifetime; at least 10 bulls have produced more than 1 million units of semen and several bulls have made more than $3 million a year, according to the Associated Press.

“The most popular bull now sells about 100,000 units of semen a year, and if you value his semen at $20 per unit, just gross income, you’re looking about $2 million,” Cliff Lamb, associate professor of reproductive physiology and beef cattle management at the University of Minnesota, said. “There are very few bulls, especially on beef side, that have the capacity to produce that much semen.”

Bulls can be purchased for less than $10,000, but Glenn Nader, livestock and natural resources advisor at the University of California Cooperative Extension, recommends heading for a slightly higher price point in order to get the highest quality bulls, whose semen will generally be in higher demand and thus command a higher price.

“To capture the kind of genetics that is worth semen collection, in beef cattle…$10,000 or more needs to be expended,” Nader said in an e-mail interview. “Also remember that they can get sick and die the next day, so…purchase livestock mortality insurance.”

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University of Nevada Cooperative Extension livestock specialist Ron Torrell said he suggests purchasing a bull that costs between $30,000 and $100,000. Bulls can live for ten years and semen from the bulls can be frozen and stored for decades after its death, Torrell said. When the bull is no longer useful, it can be sold for $0.60 per pound to a beef processor, he said.

When AI is used, the pregnancy rate was slightly higher, while the birth rate was nearly 10 percent higher, according to Beef Magazine. When AI calves were weaned, they weighed more than calves bred naturally, and because of that, revenue increased by $99.62 in the AI group on an investment of just $29.88 per cow, according to Beef Magazine. Additionally, 251 cows can be serviced using AI compared to just 100 cows using natural service, according to a University of Kentucky study.

The revenue generated for a beef cattle operator for using AI on their cows was $69.74, not including the savings associated with the reduced costs of housing and feeding a bull, according to Beef Magazine. If those are included, the revenue per cow rises to $129, according to Beef Magazine. The University of Kentucky study found that after factoring in the costs of estrous synchronization (ES)—timing insemination to a cow’s ovulation—and AI, net revenue per cow with the investment in ES/AI was $57.32, not including the long-term economic benefits of keeping heifers fathered by proven AI bulls.

However, investing in a single bull to attempt to sell its genetics may be a risky investment, Lamb said. Investors may want to consider diversifying among several bulls.

“You might pay $100,000 to $200,000 for a bull and he might not be able to produce any semen,” Lamb said. “It’s a very high risk investment….It’s a very controlled industry and there’s a lot of risk, and not necessarily much reward for the risk. You have to identify animals that have genetic potential five or six years down the road.”

Additionally, many producers still haven’t adopted AI as a viable route for increasing the quality of their herd. In fact, fewer than 5 percent of beef cattle producers breed using AI, according to Cattle Today. On the other hand it’s estimated that 66 percent of the nation’s dairy cattle were conceived using AI, according to Cattle Today.

Dairy operations use AI more frequently in part because it is easier to observe a cow’s reproductive cycle in dairy operations, where the cattle are in a somewhat confined area. It is much more difficult to determine ovulation in a cow that is out on rangeland. Additionally, it takes longer to see the benefits of AI for meat products than it does for milk products, though it is still possible to use AI for a beef cattle operation.

However, both the dairy and beef cattle semen markets can be difficult.

“One of the biggest drawbacks is that the cattle industry is driven by a lot of big politics—there are four or five major [beef cattle] breeders, and you’re always going to be competing against them,” Lamb said. “With dairy, almost all bulls utilized as semen producers are contract matings—there’s a lot less chance of someone investing in a dairy bull than a beef bull.”

Van Eenennaam said she agrees that the market can be a hard one to break into.

“Agriculture in general is pretty minimal profit margins,” Van Eenennaam said. “The minute [the AI companies] get a really good animal, a competitor can buy the semen, take that genetics and produce the next generation with that genetics, so there’s no real way to protect an animal that you’ve spent a lot of money proving and getting all these pedigrees—you almost defeat yourself.”

Those interested in investing in AI should educate themselves on the process as well as the benefits and drawbacks to using AI in a cattle operation.

“I would suggest enrolling in reproductive physiology classes at a university,” Torrell said. “The basic knowledge of the reproductive cycle of the beef cow and various synchronization protocols is essential, as well as a clear understanding of nutrition and management of beef cows.”

In addition to knowledge, an investor should be willing to get some hands-on experience or hire someone who is knowledgeable in the field. “You have to have an understanding of the estrus cycle, the various synchronization programs, and the ability to inseminate properly with experience to get cows synchronized and bred,” Torell said. “You have to be willing to set aside all other spring time jobs and make AI the number one priority.”

One of the best ways to gain the knowledge necessary for an investor to succeed in AI is to hire a consultant and work with a breeder.

“I have seen many an investor taken for a ride in the country and parted from their money in cattle arrangements,” Nader said. “They need to hire a consultant…to protect their interest. The depth of knowledge that they need to invest will take either time or money through trial and error investing to learn the industry.”

Nader also said that investors might want to look into embryo transfer rather than semen collection, as the semen industry is dominated by a few large firms.

“Now the competition is from embryo transfer from the cow,” Nader said. “The genetic expansion now comes from [the bull and the cow]. Semen is far more productive, but here we can focus on creating the top embryo and transfer them to other cows….Embryos can also be frozen and stored, but they are generally sold more on a individual basis.”

Lamb said investors could consider in-vitro fertilization (IVF)—fertilizing eggs outside the womb—as an alternative to both AI and embryo transfer.

“I think there’s a lot of potential for the future of in-vitro fertilization,” Lamb said. “There really is only one big company that seems to have a bit of a monopoly on IVF, but there are a lot of small companies that have the skills to do it, without the financial backing to grow their businesses….I think [IVF] has far more potential for income generation than embryo transfer.”

Even though investors may see a lot of promise in an industry where some bulls make as much as $3 million per year, AI is risky and requires investors to be quite persistent.

“It is tough selling semen…you are competing in a market against well established and recognizable operations,” Torrell said. “The new guy has a tough go in this market.”

“I don’t know if I would be particularly bullish on this particular investment opportunity,” Van Eenennaam said. “I think there are better places to invest your money.”

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