To determine how long it takes a cow to pay off her replacement cost, let's work through an example herd where all replacements are purchased. These values will vary from farm to farm and the calculations do not include the time value of money - a dollar earned today is worth more than a dollar earned in the future. However, this example demonstrates how to analyze replacement costs. Here, it takes two full lactations before a cow pays back her replacement costs. A heifer entering the herd may be genetically superior and have fewer health problems, however, she comes with a debt that must be paid off.
Heifers entering the herd are capital investments.
This means a cow is in the average herd for about 2.7 years. These 2.7 years, divided by the 1999 average Michigan DHIA calving interval of 14.6 months, indicates a cow goes through about 2.2 lactations and 3.2 calvings before leaving the herd. Another way to analyze replacement costs is to calculate the cost per cow or per cwt of milk produced using the previous values. Cows in their third, fourth or later lactations can contribute considerably more to net income because they don't have the burden of repaying replacement costs. Older cows make money.