Replacement Value | TSLN.com

Replacement Value

As cattlemen try to build back or expand their herds today, some are keeping heifer calves and some are purchasing replacements. Considerations when deciding which decision is best include feed costs, labor availability/costs, environmental factors, genetics, prices, tax implications. The answer isn't always straightforward and it may change from year to year.

Lee Schulz, assistant professor of economics, Iowa State University, says BEEF magazine did a recent survey that showed 83 percent of producers hold back heifers, and about 37 percent buy heifers. "There are some combinations, since many ranchers retain heifers as well as buy some. Many people raise their own but still take advantage of opportunities to buy, due to accelerated expansion in recent years and the current cattle cycle," he said.

"There are significant costs and some risks in developing heifers. There's quite a bit of time between when you decide to retain them and when you get a calf from them. On the flip side there is also some risk on the open market in terms of availability. In 2013 through 2015 we saw historic high prices for replacement heifers. There is some risk in selling heifer calves then going out in the open market and purchasing bred heifers."

Raising Replacements

“It often comes down to infrastructure, and also how much control you want of your genetics. First and foremost you want to make sure you will be able to feed those heifers separate from the mature cow herd. But even within a group of developing heifers we often don’t have the uniformity we’d like, in terms of age and weight. Patrick Gunn, assistant professor of animal science at Iowa State University

Mick Kennedy, a commercial cattleman 13 miles west of Faith, South Dakota says the main reason he raises heifers is because they are acclimated and adapted to his ranch environment. "I also don't like to buy heifers because people overfeed them; they get too big," he says.

Recommended Stories For You

"The other reason I prefer to raise them is because I have grandchildren here and we can't tolerate any cattle that are crazy-wild. If we raise them, we know what they are and they are safe to handle. We walk around our calves every day after weaning, and bucket feed them grain. If there's a high-headed individual, we can get rid of it. But if you buy bred heifers, you are stuck; if you spent $3,000 for one you tend to hang onto it even if it's not quite what you wanted," says Kennedy.

Kennedy says maternal qualities influence some of their bull-buying decisions, putting emphasis on milk EPDs and moderate-framed cows. They maintain two cow herds, using a terminal cross–black baldy cows and Limousin bulls–for calves that are destined for the feedlot. The black baldy cows and their replacements come from Angus cows bred to Hereford bulls. The reason we like the baldy cow over the straight Angus is that she tends to last about two years longer, and also when you do have to get rid of her she's not just a rack of bones," says Kennedy.

"Everybody's operation is different. I understand why some people buy their heifers. If you raise them, however, you know what you've got and can monitor it better than when you buy them. It costs money to raise them, too, but we do it for several reasons. Cattle raised on your place know where to go to get out of a bad storm, and know how to use the pastures. If you buy cattle from somebody else and bring them home they don't always mingle into your herd; they tend to separate out with their own buddies," he says.

"We used to buy our replacement heifers, but it got to the point where we couldn't afford to buy them. There would also be a few that were wild or didn't milk very well. So we started keeping our own about 20 years ago and it seems to work better. My philosophy is 'if it's not broke, don't try to fix it' and if something works we tend to stick with it," he says.

Many ranchers' breeding programs involve several generations of cattle selected for maternal traits, fertility, longevity, disposition, etc. that would be difficult to replicate in purchased animals, and the on-farm replacements are already adapted to their environment and handling methods. Health risks for the herd can also be minimized by not bringing in new cattle.

Buying Bred Heifers

Rick Funston, University of Nebraska, West Central Research and Extension Center, says there are many good arguments against raising heifers, and buying them instead. "In economic analyses there are sample budgets comparing the two (raising versus purchase). There's also more opportunity of going to a terminal sire system," he says.

If you raise your own heifers you need 2 different herds in order to utilize a terminal cross and still keep heifers. "Otherwise you give up a lot of productivity, selecting instead for calving ease," says Funston.

"I worked with several ranches in Nebraska that don't keep any heifers. It's all terminal crosses and they outsource their replacements. They don't want to put up with the headaches—and time, money and labor for two years before those heifers have calves. Many ranchers have either not considered or not understood the performance issues they are giving up by having replacement heifers, along with the opportunity of going to a terminal sire," he says.

Other advantages include less need for "heifer bulls" and a chance to reduce bull power. Herd size can also be increased quicker, if a producer has opportunity to expand. Producers may be able to purchase replacement heifers from someone who specializes in producing heifers, and can often specify the breed cross or genetic profile of purebred and composite heifers purchased, as well as the breed and individual sire to which heifers are bred. Commercial developers often utilize estrous synchronization in conjunction with artificial insemination, which can increase genetic merit of progeny and eliminate the potential for reproductive disease transmission. This practice also allows producers to obtain heifers that conceived over a short time frame, and have a shorter calving window.

Raising Replacements

"If you do keep replacement heifers, consider use of AI and not giving up so much performance. Today there is an abundance of AI terminal sires with calving ease, but pay attention on this, because generally those calves are not something you'd want to keep as replacement females," Funston says.

"If you are breeding by natural service, growth traits and calving ease are generally antagonistic, and we tend to give up a lot of performance for calving ease. The calves from first calf heifers won't be your bigger calves at weaning time," he says. "A ranch needs adequate numbers to even consider keeping replacement females, but a lot of small operations do. In many instances the cattle are not the primary income source. We often make our main genetic decisions in the cow herd for a 15 percent replacement rate. Some of the smaller operations that keep replacement heifers may only have one or two bulls, so they absolutely focus on calving ease, which is not needed as much in the mature cows," he says.

A person keeping heifers has to keep a few more than needed, because they may not all conceive in a timely fashion during their first breeding season. "This leads into the topic of how you develop them. If you are want a replacement female enterprise in your operation, you really need to keep them all and treat it as a yearling operation." Then you can keep the very best ones that breed early and sell the rest.

"We had a heifer meeting here in June with Jim McGrann, retired economist from Texas A&M who works with many large ranches on heifer enterprise decision. His comment was that if you don't have at least 200 cows you probably don't have any business keeping replacement heifers. We see many herds with fewer numbers raising their own heifers and they are giving up a lot of performance potential while focusing on calving ease and maternal traits that they could probably outsource," says Funston.

Depending on your end goal and marketing program, if you are a smaller producer wanting a terminal cross, it may not be feasible to try to develop your own heifers. If you only have a small herd, you can't justify having two groups and two bulls when in essence you really need only one.

"There are plenty of sources to find replacement females economically, which enables you to minimize the number of bulls needed, and number of management groups to work with," he says.

"If you plan to keep replacements, the best situation is to keep them all, expose them for a short time to a bull, and only retain the ones that breed early," says Funston.

Selling Bred Heifers

Dave Ashcraft, a rancher near Twin Bridges, Montana has been selling bred heifers off and on for more than 10 years. "This last year we felt the market was at a point where there would be big expansion in cow herds and economic viability in breeding a bunch of heifers. I think I was a year too late, though, for the number that we bred. They have been a really good price, the past two years," he says.

"We saw the largest increase in calf prices last year that we've ever seen, and that soon translated into breeding stock, too. With this recent hiccup, the market has slowed down, but I think we will come back from that because there are people still wanting to expand their herds," says Ashcraft.

"The old adage that a bred heifer should be worth twice what a good steer calf is worth usually holds true. Even at this corrected price, good steers are still bringing $1200 to $1300. That makes a bred heifer worth about $2400 to $2500, and that's still a pretty good price for heifers," he says.

"We bred 600 this year and sold some into Texas, and have some prospects going into Kansas and Nebraska. This is what I anticipated—selling them into parts of the country that experienced sell-down of cow herds due to drought, and now looking to restock. This is a better market for us than locally in Montana. There are a lot of heifers offered for sale in Montana at this point in time. You have to reach out to find a market."

He's not sure if he'll breed more heifers next year. "It depends on how we finish marketing what we have, and on what happens with the feeder calf and fat cattle futures market. We raise half the heifers and buy half. We do a lot of sorting and put together groups; a lot of them are synchronized AI, sex identified and gestation identified." Buyers know the sex of the calves and when the heifers are due to calve.

"We can put together load lots that are similar heifers. One buyer took a load of heifers that were all AI bred, with heifer calves inside them, out of a very powerful bull, all due to calve about the same time. That added some value for him and he was able to pay us more money for those. We have enough heifers that we can put a load together at a moment's notice," says Ashcraft.

This is the advantage of breeding large groups. "There is an economic scale to this; if you have enough so you can sort into groups that fit well together, the buyers get some value from the fact they will only be calving for a short perid of time. They also know the genetics on both sides. This adds a lot of value to the heifers and makes them easier to market," he says.

Adding It Up

Patrick Gunn, PhD, PAS, Cow-Calf Specialist, Assistant Professor, Iowa State University Department of Animal Science says that from a management perspective there are several things that help drive the decision on buying versus raising. "It often comes down to infrastructure, and also how much control you want of your genetics. First and foremost you want to make sure you will be able to feed those heifers separate from the mature cow herd. But even within a group of developing heifers we often don't have the uniformity we'd like, in terms of age and weight. In some cases it's best to manage heifers in more than one development group," he says.

"In some parts of the U.S. where cow herds are a lot smaller, we don't have the number of animals to justify the additional space, feed, and labor required to do an adequate job of developing females," says Gunn.

"We have some tools to help ranchers in these decisions, such as looking at the net present value of those heifers," says Schulz. "This investment decision—either raising your own or purchasing them on the open market—is a long-term investment, anticipating at least five or more calves out of that replacement animal. You have to consider the conditions today, but also the longer term regarding what the prices and costs are going to be," he says.

"It is very important to budget out that decision, going forward into the future. If you are purchasing heifers, look at that multi-year gain potential in genetics, and realize it's not just a one year investment. The genetic potential will exist over the life of that productive female," says Schulz. Sometimes a person can buy genetics that are better in certain aspects than what you have. On the flip side, sometimes the genetics you've worked many years to create are better suited for your purposes, on your own ranch, than what you can go out and buy.

"Regarding feed, we look at it being sold at market value, but maybe there's potential for retaining more females and decreasing culling rate and perhaps that return would be higher—putting the feed through cattle instead of selling it. There are many factors at play and each producer must make his/her own decision. It's difficult to give any rule of thumb because there is a lot of variability in expectations of price and costs, not only for the individual operation, but also looking forward," he says.

"No one recommendation fits all, when it comes to replacement heifers," says Gunn. "There are so many different ranch sizes, management practices and end goals for various operations. The decision may change from year to year, for some producers, based purely on economics. If you are truly running it as a profit-based enterprise, there are some critical evaluations that need to be done each year, in terms of which the best option might be," says Gunn.

It's always a gamble, as ranchers try to pencil it out and predict costs. The more homework you can do, the more able you are to make the right kind of gamble. "Look at costs, and productivity—in the best case scenario and the worst case scenario, if you buy or raise your replacements. You need to really look at where the risks are, in each situation," he says.

"It's also an evolving situation. What might be better one year might not be better in another. Producers need to look at these things each time they make this decision," says Schulz. Some of the tools provided by economic research and analysis at the various universities can be helpful.

"We developed several tools in this expansionary phase." These can help producers educate themselves on various aspects of this important decision.

This link provides a factsheet and decision tools for assessing buying versus raising replacement heifers.

https://www.extension.iastate.edu/agdm/livestock/html/b1-73.html

ADVANTAGES OF BUYING COWS INSTEAD OF HEIFERS – Funston says ranchers need to think in terms of what the most appropriate replacement female might be. Sometimes it might be more feasible and productive to purchase young cows that are already producing, rather than bred heifers.

“There are some compelling arguments for purchasing (or making arrangements with another ranch as your source for) something other than a young heifer. Bred heifers are the most expensive to buy and the least productive; it takes a couple years before they reach peak production. Our data shows that younger females are less productive until they get to be at least 3 to 5 years of age. They are also not good candidates to keep replacements out of, especially if they are mated to a terminal sire,” he says. “The alternative might be a young cow rather than a heifer.

Go back to article