Tough conditions in the dairy industry are prompting U.S. dairy farmers to increasingly rely on genetics to improve their profit margins, according to a new research report from CoBank. Milk prices are down 40% from their highs in late 2014, but lower slaughter prices have also hurt the industry.

Until recently, the effects of falling milk prices were somewhat muted by record high cattle prices, said Trevor Amen, animal protein economist with CoBank and author of the report.  Record-high beef cattle prices boosted dairy producer’s margins by as much as one-third in mid-2015 through the sale of cull cows and bull calves.  Now, those sales are responsible for less than 10% of margins as calf and slaughter cow prices have retreated to their historical averages – down roughly 90% and 40%, respectively, from their 2015 highs.

As a result, many American dairy farms are currently operating at or below break-even margins.

“Producers are left with two ways to bolster margins – increase milk productivity or obtain higher premiums for bull calf sales,” Amen said.  “Recent advances in genetics make both of these possible, and at a much more affordable cost than in years past.”

Farmers have a number of genetic tools at their disposal including sexed semen, genomic testing, in vitro fertilization, estrus synchronization techniques and management software technology. Additionally, some dairy producers are crossbreeding dairy cows with proven beef sires to add value to the bull calf crop, enabling the capture of market premiums in the beef market.

“These strategies can provide much-needed advantages for dairies,” Amen said.

A typical arrangement, he noted, includes a calf grower or feedyard that contracts with a dairy to purchase dairy beef calves at a premium price to the Holstein calf market.

While genetic advancements and breeding programs can offer dairy producers distinct advantages, Amen recommended breeding programs be customized for each farm. They may not work for all dairy producers, he added.

“The objective should be to continue to improve production efficiencies and add value to both the dairy and beef cattle supply chains.”