C O L L E G E O F A G R I C U L T U R E & L I F E S C I E N C E S
Agricultural and Resource Economics
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North Carolina State University, North Carolina A&T State University, U.S. Department of Agriculture, and local governments cooperating.
Management and Marketing Series
November 2002
Series No. 21
Contract Raising Heifers
Geoff Benson, Ph.D Associate Professor and Extension Economist
Typically, about one-third of the cows in a
dairy herd leave every year, creating the need
for a steady stream of replacements. Most
dairy farmers in the Mid-Atlantic states raise
their own replacements and this represents a
significant commitment of time and farm
resources. Contract heifer raising is growing in
popularity and may offer advantages under
certain circumstances. However, it must be
evaluated carefully from an economic and legal
standpoint. There are two basic approaches to
contract raising, an option contract and a
contract for growing out heifers.
Option contract. Under the option
contract the dairy farmer supplies heifer calves
to the heifer raiser (grower), usually after
weaning or older. The dairy farmer may or
may not retain ownership but the value of the
calf is established based on market prices. If
ownership transfers to the grower, the heifer
grower finances the raising costs. If ownership
is retained by the dairy farmer it is customary
for that farmer to pay the grower an amount
sufficient to cover the out-of-pocket costs, say
monthly, throughout the raising period. When
the heifers are close to calving, the dairy farmer
decides whether to take back or buy back the
animals. If the dairy farmer buys the heifer(s)
he or she pays the agreed price less the total
amount already paid to the grower and the
original value of the calf. The value of the
animal is usually based on the current market
price. If the dairy farmer does not wish to buy
the heifer(s), the grower