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0308 PD: Sexed semen: Economics of a new technology

John Fetrow, Mike Overton and Steve Eicker Published on 04 February 2008

Almost since the advent of A.I. breeding, producers and researchers alike have anticipated the development of the ability to sort or select semen in order to produce more female offspring. This technology is now a commercial reality thanks to technological developments in recent years that have improved cell sorting capabilities.

There have been various approaches developed that allow researchers to separate bovine semen into fractions containing higher-than-normal concentrations of X-bearing sperm. These technologies include the use of gender-specific antibodies, centrifugation, free flow electrophoresis and flow cytometry. Of these, the only proven method to date for separating X- and Y-bearing sperm in a manner that has commercial applications has been flow cytometry. This method was first used in the 1980s, but early results produced dead sperm.

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Johnson et al. helped refine the technique of using fluorescence-activated cell sorting. The current method of using flow cytometric techniques for sperm sorting was licensed to XY, Inc. for commercial development. This approach uses technologies developed by USDA, Colorado State University and DakoCytomation, which is a company that develops advanced flow cytometers for commercial development.

Briefly, the process involves identification of differences in DNA content. X-bearing sperm contain 3.8 percent more DNA than the Y-bearing counterparts. Sperm is diluted to a very low concentration and then stained with a harmless DNA-specific fluorescent dye. This dilute and dyed sperm sample is then sent through the flow cytometer at speeds of approximately 60 miles per hour under pressures of 40 to 60 pounds per square inch (psi). The sperm are aligned in a special manner, single-file, and are passed through a laser beam.

The stained DNA emits fluorescence, and a difference in the amount of fluorescence is detected. In order for this process to work correctly, sperm heads must be precisely oriented during the cytometric evaluation by using a specially designed beveled nozzle. Without the proper orientation, differences in DNA content cannot be accurately determined. The concept of sperm orientation is specifically protected under the Johnson patent, held by the USDA and licensed to XY, Inc.

Depending upon the relative amount of florescence (based on relatively small differences in DNA content), positive or negative charges are applied to each droplet that contains a single sperm. Sperm then pass through charged deflector plates and positively charged particles go one direction, negatively charged in another, and uncharged droplets pass straight through. The uncharged particles may contain multiple sperm, uncharged sperm of either sex or potentially damaged material.

The result is a process that is able to repeatedly separate sperm with 85 to 90 percent purity. Commercialization of sexed semen using this sorting process in the United States was initiated with a 2003 license granted to Sexing Technologies, Texas, and this company is currently partners with several semen companies in the United States and abroad.

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As one might expect, running individual sperm through in single file, even at speeds of 3,000 to 5,000 sperm per second, takes some time, and the process results in a reduced final sperm count of undamaged, progressively motile sperm of the desired sex as compared to the original starting sample. As a consequence of time, potential for sperm damage and much less than 100 percent efficiency, only about 10 to 15 percent of the original sperm sample entering the machine are recovered as marketable, sexed product. Thus, commercially available straws contain only about 2 million sperm, as compared to traditional semen straws which contain closer to 20 million.

Due in large part to the reduced sperm count of sexed semen, fertility of the final product, as determined by conception risk in virgin heifers, is reduced by approximately 30 percent. The resulting semen generally has had a much lower conception rate surface than conventional A.I. semen. Conception rates in virgin heifers of 55 to 60 percent with conventional semen and 35 to 40 percent for sexed semen have been reported. With the limited supply of gastric emptying of digestible solids (GES), its higher cost and its significantly lower conception rates, GES has thus far largely been applicable to only special niches in breeding in the dairy industry such as embryo transfer, special matings for producing very high merit offspring or limited use in virgin heifers.

With conventional semen, only about 35 to 38 percent of conceptions (at 40 days pregnant) result over the long term in a fertile female offspring that reaches her first lactation. Therefore, the availability of replacement heifers has been a production constraint for many dairy farms. If more heifers were readily available, farms could increase their herd replacement rate to some degree. This relative shortage of available heifers has played a key role in the unusually high market prices (prices in excess of the cost of production) of replacement heifers in the past several years in the United States.

If sexed semen becomes more widely adopted, managers of dairy herds will be able to breed to produce more replacements, to source replacements from their best cows or both. By using sexed semen on enough of the herd’s cows, sufficient female heifers for replacements could be more easily achieved. With sexed semen that can produce approximately 85 percent female offspring (female sexed semen), roughly 65 percent of all calvings would produce a two-year-old pregnant replacement heifer.

If roughly 60 percent of all cows were bred with sexed semen, those breedings could supply more replacements than the current national rate. In this case, as many as 40 percent of all breedings would not be needed to produce replacement heifers (although they would still be necessary to return cows to another lactation).

Sexed semen will likely lead to a strategy where the top genetic merit cows (or virgin heifers) in a herd are bred with sexed semen, middle genetic merit cows (or heifers) are bred with conventional A.I. and the bottom merit cows (heifers) are bred by some inexpensive means without intending to raise females born from those bottom-end breedings.

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For most dairy farms, there will be considerations that extend beyond simple biology of the technology and direct economic considerations. For many farms, the option of increasing the number of growing heifers is not just a question of long-term profit but also one of day-to-day operations. Many farms do not have the facilities, feed, labor or capital needed to rear many more heifers. For those that contract heifer rearing off site, however, these may not be significant barriers.

The payoff for the investment in sexed semen breedings happens further out into the future; cash flow constraints at the time of breeding may limit the amount of investment in sexed semen. For many dairy farms, environmental regulations and permitting restrictions would mean that more heifers on the site would require reducing the number of adult cows. In most circumstances, this would not be desirable. Finally, by investing in more sexed semen breedings that produce more heifers in a given year, the dairy farm might convert cash profit into long-term assets, postponing taxes and converting ordinary income into capital gains in the long-term.

Supply and price of replacement heifers
There are about nine million adult dairy cows in the United States today. That number is slowly declining as the dairy industry consolidates into fewer herds that produce more milk per cow, on average. Each year fewer than four million cows are replaced by new first-lactation replacement heifers. Current prices for heifers are at a historical high because the demand for heifers, particularly by large herd expansions, has driven the price up far past the simple cost of rearing a replacement heifer.

Currently, female heifer calves born in the United States are a limiting resource for the dairy industry, limited by the rate at which female calves are born from breedings with conventional semen and survive to calving. In the past, the shortfall in U.S. heifer production was partially buffered by heifers imported from Canada; however, bovine spongiform encephalopathy (BSE) has ended that supply and has contributed to the very high current heifer prices. The loss of the Canadian market has removed about 75,000 heifers from the supply.

Once female sexed semen is adopted across a large enough portion of the industry, there will be an adequate supply of female dairy calves born to meet the demand for replacements. In all likelihood, only a small to moderate use of female sexed semen will increase the supply of replacement heifers enough to satisfy the demand, but the impact will not happen quickly. It will take a minimum of three years from the first significant introduction of the technology for sexed semen-derived heifers to arrive as replacements (about one year for breeding and gestation, plus two years for growth).

In addition, adoption will inevitably be gradual, due to initial supply limits on female sexed semen and also because of all the normal constraints to adoption of any new technology. Coupled with the fact that most dairy farms breed all year (so no more than 1/12th of a herd are available to be bred in any given month), the actual upturn in supply of replacement heifers will probably occur only gradually over a period from three to four years and longer after initial introduction of female sexed semen.

As the supply of replacement heifers rises and meets the demand, the price of heifers will drop to an equilibrium price driven by the cost of the newborn female dairy calf, the cost of rearing and profit for the heifer raiser. We expect that, in the long run, the price of an average replacement in the market will drop to a range of $1,300 to $1,500. This is consistent with published studies of the cost of rearing heifers, anecdotal reports from heifer raising operations and the data on heifer prices in this decade.

Once the price of replacements drops to nearly the cost of rearing, breeding for extra heifers beyond the herd’s replacement needs would only make sense if the dairy farm can earn a premium above the general market price (e.g. for superior genetics or health) or could raise heifers for notably less than the average producer. Instead, it may be appropriate to breed poorer cows in the herd for other purposes, perhaps to produce crossbred beef calves.

As sexed semen first becomes available in a period when market prices are considerably higher than the cost of rearing, early adopters may reap a brief advantage as they sell excess heifers in a market where the price is still high from the temporary limitations in supply, but this opportunity will probably not be prolonged and has other limitations discussed below.

Herd replacement rates
As noted above, an increase in the supply of replacement heifers following the introduction of sexed semen will likely reduce the price of replacements. At a lower price, more cows will warrant replacement on many dairy farms. There will probably be an early phase where more cows are culled in response to the new, larger supply of heifers. With more available heifers, herds might be able to cull more cows that don’t justify their presence in a “slot” on the dairy farm. This may mean that herd turnover rates would go up, to the economic advantage of the farm.

The long-term equilibrium culling rate will be driven by economics, and preliminary modeled estimates run at $1,300 for a replacement heifer suggest that they will probably not be markedly different from the rates today, even if more heifers could be available because of female sexed semen. Given this, the overall current demand for heifers in North America will look much like it does today.

Over the long-term, there will probably not be a significant overall increase in the nation’s herd turnover rate beyond what has been observed in the industry several years ago when heifer prices were at a more moderate level. Optimum herd turnover rates will still be fundamentally driven by the complex mix of milk price, cost of replacement heifers, cull cow prices and other factors specific to the particular herd at a given time. The need to properly care for cows and to preserve their value in the herd will not change.

Biosecurity
Sourcing replacements from within the herd helps the producer avoid the risk of introducing or increasing the prevalence of infectious diseases that could accompany outside replacements. In addition, heifers raised under the control of the home dairy farm will be adequately vaccinated according to the farm’s protocols. Finally, home-raised heifers will have been exposed to pathogens in the farm’s environment and will therefore be more likely to have some degree of immunity at the time of their first calving.

If the market for replacement heifers becomes more competitive, some of these biosecurity advantages may also be captured by dairy farms that purchase replacements, since competing heifer suppliers may differentiate themselves by supplying better quality heifers and paying added attention to heifer immune and disease status.

Fewer dystocias
Dystocia in cattle has several negative impacts. Dematawewa, a collaborative author for the Journal of Dairy Science, reported an incidence of dystocia of 19 percent in first parity animals and 6.8 percent in later parities. Overall dystocia rates were 13.9 percent. Losses following dystocia included lost milk, fat and protein yield in the lactation following, added days open, additional inseminations and cow and calf deaths. Using data from that study, the average cost per case of dystocia was $147 per case with score 3 or greater.

Since the use of sexed semen will produce proportionally more female calves and because female calves, being smaller on average, might lead to fewer dystocias, sexed semen use might reduce the rate and cost of dystocia on dairies. While possibly true, the overall impact of a change in dystocia rates is likely to be small. The effect, if any, will fall only on those cows bred with female sexed semen. If some of the herd were bred to beef sires (or perhaps male beef sexed semen to produce more beef bull calves) some of the effect may be counterbalanced by corresponding changes in risks in these other cows.

Genetic selection for other than production traits
Because genetic advance in traditionally selected traits will be accelerated by sexed semen, there will be an opportunity to add other traits to the selection criteria for A.I. bulls. Effort could be made to select for better performance in areas such as mastitis, stillbirths, feet and legs, udder conformation and reproduction. Broadening the number of traits selected for will reduce the rate of gain in any particular trait, but the overall rate of genetic advancement will be accelerated.

Embryo transfer
It seems very likely that once sexed semen is available at any reasonable price, the embryo transfer industry will shift entirely to sexed semen, at least presuming the desired sires are available. In general, embryo transfer breedings have a clearly defined preferred gender outcome, and sexed semen will make a significant contribution to those breedings. Sexed semen may also find some use for in vitro fertilization of ova harvested from ovaries retrieved at slaughter from top genetic merit cows.

Culling growing heifers
With sexed semen, dairies might more readily cull poor performing growing heifers, avoiding the losses associated with bringing them into the herd only to have them perform inadequately as milking cows as well. This might include heifers with chronic pneumonia, heifers too slow to conceive or heifers positive for specific diseases.

Extended lactations
At least hypothetically, if a dairy were otherwise assured of enough pregnancies for replacements, they might delay breeding cows again, extending their lactation, increasing the proportion of adult life spent milking (not dry) or even reducing a cow’s total number of lactations and thereby avoiding the risks of the transition period. This is possible because with sexed semen fewer calvings per cow per year are needed to provide adequate replacements for the dairy.

Given current lactation performance and the natural decline in production across the lactation, this seems unlikely to be a desirable strategy. If this were a profitable strategy for some cows, one would expect it to already be done across the industry to some degree, with the extra replacements purchased from other dairies. The fact that this is not a prevalent strategy on dairies suggests that the value of early lactation peak milk is simply too compelling and timely rebreeding and returning to early lactation after another calving is too valuable.

Specialized dairy sectors
For some specialized dairy sectors, the value of replacement heifers may remain significantly above the cost of rearing, making sexed semen more valuable. Organic dairies, for example, may have continuing demand for replacement dairies that qualify as organic animals for sale to other dairies wishing to convert to or expand their organic production. This type of situation may also apply to breeds with smaller base populations but growing in popularity, for example some of the breeds being used in crossbreeding programs, and for grazing dairies. These opportunities are likely to remain as relatively small sectors of the total U.S. dairy production market.

Economic evaluations
A simple model of the economics of sexed semen is a simple answer to the question of how much sexed semen is worth. It assumes that all cows (or in this case heifers) bred will get pregnant and deliver a live calf, that all calves are either sold at birth (bulls and freemartins) or grow to become replacements (heifer calves). This approach, particularly if applied to today’s prices for replacement heifers, can show a respectable profit per unit of semen, in this case $22, given a price differential of $30 (conventional A.I. at $10 and sexed semen at $40). Unfortunately, the model leaves so much out that its conclusions are not useful. The model is included in this discussion only to serve as a warning against such a simple evaluation.

A slightly more complex model begins to account for losses of pregnancies, deaths of calves, etc. In essence, the model describes the economics as follows. This model follows the population to be bred through its breeding cycles, allowing sexed semen to be used for a specified number of initial breedings and then conventional semen for later breedings. Expenses include the cost of the semen, a charge for extending the age at first calving for using sexed semen (some heifers will calve at a later age in the sexed semen-bred group) and adds the cost of culls of those few heifers that remain open at the end of the allowed breeding period.

This model also more accurately accounts for the loss of heifer calves after birth up to their first calving. For the possible pool that could be bred with sexed semen, animals could be bred at only their first insemination or for more inseminations (this model allows up to six cycles to be bred with sexed semen, breeding any remaining open animals with conventional semen). Conventional semen will result in more pregnancies than sexed semen if a limit is set to how long heifers are eligible to be bred (set in the model at eight cycles or a 168-day breeding window). This makes the differential in conception rates between the two types of semen, a critical factor in determining their relative value.

Some pregnancies are lost, some calves are stillborn and some living calves die or fail to get bred; all factors that reduce the number of productive heifers that result from the breedings. Only these living, pregnant springing heifers bring significant value from the female embryos from a conception. On the other side of the gender divide, bull conceptions suffer similar losses up until a living bull calf is born and can be sold.

Springing heifers and bull calves sold constitute the principal revenues in the model. The expense side of the evaluation includes the costs of the semen (the differential cost is also a key factor) and the cost of raising those females that live to become springers.

Given this model and conditions that apply to breeding nulliparous heifers (60 percent conception with conventional semen; 45 percent with sexed semen) and a $30 price differential, using sexed semen loses $35 per heifer that enters the breeding pool even with a price of $1,800 for a springing heifer. If heifers sell for $1,800, sexed semen using this simple model is only profitable at fairly low differentials in price (probably less than $15 added cost for sexed semen) and at low differentials in conception rate (less than 10 percent difference).

This model assumes that heifers would be bred with sexed semen during as many as the first six cycles after the start of breeding. This was set based on sensitivity analyses that showed this to be the best level of potential utilization, given the other input constraints and when the potential for genetic gain is included. Using only this model that depends primarily on returns for extra heifers, the optimal use of sexed semen would be to use it only on the first breedable cycle. In that case, the loss per heifer in the breeding pool is only $9, not $35.

This second model serves to frame the outside borders of possible value of sexed semen, but there are still important aspects not considered. The results are based on a value of a springing heifer of $1,800, i.e. conditions as they now exist where there is an intense demand for replacements. Even under these positive market conditions, sexed semen can only be profitable if there are very small differentials in the price of sexed semen and small impacts on conception. If there were an adequate supply of heifers and the value of a springing heifer were to drop to $1,400, the value of sexed semen would drop further to a loss of $114 per unit of semen (given the modeled assumption). At this latter, likely steady state situation, the use of sexed semen never achieves profitability based solely on the value of the extra heifers produced.

All of the foregoing has been based on breeding nulliparous heifers that have relatively high conception rates. This tends to minimize the negative impact of reduced conception rates with sexed semen. If the same models are run but the conception rates in adult cows are used (e.g. 35 percent with conventional semen and 25 percent with sexed semen, and with some other input adjustments to reflect conditions for cows), the economics of sexed semen becomes even more difficult. The loss per cow bred based only on the value of extra replacements is now $88. If replacements are only worth $1,400, the loss per cow is $141. If sexed semen is only used for the first breeding in cows, these numbers can be reduced to losses of $21 and $33, respectively, but losses nonetheless.

Incorporating genetic gain
If sexed semen seems so hard to justify based on the extra heifer calves it produces or by reducing dystocia, are there other aspects to the value that justify its use on dairies? The answer is yes, although the arithmetic becomes more complex and will require more sophisticated management than a simple rule like “breed virgin heifers on their first service with sexed semen.” The key to the value of sexed semen lies not in the opportunity to simply have more heifers; it lies in the opportunity to have better heifers.

If a dairy uses sexed semen to breed cows without attention to genetic merit (as assumed in the models considered above), then there is no genetic gain from the “cow side” of the breeding but only from the “bull side” (i.e. the relative genetic merit of the bull used compared to the average cow in the breeding pool). If, however, the dairy could source more of its heifer replacements from the better cows in the herd by using sexed semen to breed those cows, then the dairy would gain genetic merit from those female offspring from both sides of the breeding.

Since the genetic merit of cows on a dairy are normally distributed, one can calculate the average genetic merit of any subpopulation of cows. Population of cows to be bred can be segmented into three parts. The “top end” of the distribution of dams could be targeted for breeding using sexed semen producing more replacement females of higher genetic merit. Below a certain level, dams could be bred with conventional (and less expensive) conventional semen. If properly managed, these two upper populations of better cows could produce enough replacements to meet the needs of the dairy, or at least to match the number of replacements produced if the entire breeding population were bred using conventional semen.

Given that the needs for replacements has been matched, the remaining “bottom end” of dams could be bred in a variety of ways. If also bred with conventional semen, any resulting female offspring could be sold as calves or raised and sold as marketable replacements, depending on market and farm conditions.

This next level adds considerable complexity to the issue. It is no longer an issue of “use sexed semen” versus “use conventional semen” on the breeding pool. First, the dairy must be able to reliably rank its breeding pool based on genetic merit. Many dairies cannot do this or can do so only with a large degree of error. For those who can rank genetic merit with some degree of reliability, the question now becomes one of degree, not absolute. For most dairies, it would be profitable to use sexed semen for the first insemination on the best dam in the breeding pool. It would not make sense to use sexed semen for the eighth breeding of the worst female in the population. The important question is: where is the cutoff between these two extremes? The answer is not simple, and as always in matters of economics, it depends on a host of factors that impinge on the decision.

Summary
Sexed semen is a new and potentially important new technology in dairy reproduction. It offers the promise of a more abundant supply of better replacement heifers, particularly if it can be made more widely available and if reductions in conception rates can be minimized.

Herds with better genetic information for their breeding populations will have an opportunity to capture more value from sexed semen. They will use sexed semen to breed their better dams and make more rapid genetic progress than before. Herds that want to assure a more reliable and better quality of internally grown heifers will use sexed semen to source more replacements and improve biosecurity. Genetic selection can potentially place some emphasis on characteristics not routinely selected for today.

Because of its impact on conception, sexed semen is currently more applicable in virgin heifers than in cows. Its use without consideration of genetic merit is not likely to be cost- effective; the gain in value for more heifers does not offset the various costs involved. Significant biosecurity concerns (not considered in any of the models presented in this paper) might tip the balance in favor of more use of sexed semen to produce replacements internally.

The optimal use of sexed semen depends on many economic and biological factors. There is no reliable “rule of thumb” that can dictate proper use across the variety of herds and economic scenarios possible. Proper use of sexed semen will require good genetic information on females in the breeding pool and thoughtful calculation of the best targeted use in top genetic merit candidates. PD

References omitted but are available upon request at

—From 2007 Western Dairy Management Conference Proceedings

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