Dillon Feuz discusses replacement heifer economics
Based on the sales receipts I have been seeing lately, there appears to be a lively market for bred heifers and bred young cows, particularly in northern cow-calf country. I suppose a combination of selling 2011 5-weight steer calves for $165-175 per hundredweight and the expectation that 2012 prices will even be higher will generate a little herd rebuilding excitement. But, can you really justify paying $2,000 for a bred heifer?
That is certainly a loaded question, and one that will likely be answered quite differently by different ranchers. Let’s consider the market price, cost, and value of a replacement heifer. These are three different numbers, and only the market price is likely to be very consistent from one operation to another.
Cattle-Fax reported the average price in January for bred heifers was over $1,300. However, there have been some “fancy” type bred heifers sell for $2,000 per head. As I work through some cowboy math, I assume the cost of raising those bred heifers probably varies between $1,200-1,300 per head for many producers. That is assuming a market value of $800 for a heifer calf last fall, $200-250 in feed for a year (hay and pasture at market prices), and $200-250 in other costs (vet., supplies, labor, interest, death loss, bull costs). I also account for the fact that not all those heifer calves that were kept, will be pregnant this fall and enter into the cow herd. If you can raise a bred heifer for $1,250, should you be a willing seller for $1,350? That is a $100 per head return. What is the expected value of that heifer in your herd?
Determining the expected value of a bred heifer this fall is anything but an exact science. First, one must estimate how many calves the heifer will wean in the future. Poor management of the heifer could result in the very costly, one-and-done scenario. A first calf heifer that doesn’t re-bred probably loses about $300 if she was purchased for $1,350. What about a heifer that weans 4-5 calves and then is culled and sold when perhaps cull cow prices are much lower than they are today; her true value today may not be much over $1,100. However, the heifer that weans 7-10 calves may actually have a value in excess of $2,000 today.
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Once you decide on the probability of a heifer weaning a certain number of calves, you also need to forecast cow and calf costs, and cull cow prices to determine the expected value of today’s bred heifer. My confidence level in my own price forecasts 10 years out, or anybodies for that matter, is about the same as the beef judge at the county fair who was asked to judge a couple of roosters. He commented that he thought they weighed 10 pounds. Then he quickly added, “plus or minus 5 pounds.
So with that caveat, I forecast costs and prices for 10 years, placed a probability on a heifer having 1,2, … 10 calves and determined her expected value today. Assuming an annual cow cost of about $550 per head, I arrived at an expected value of $1,400 for a bred heifer. At that value, if you purchased her for $1,350, you will just do a little better than break-even after several years of toil and labor. I should point out, that in all my numbers, I am assuming you are being paid for your labor, and likely some for your capital. That means you will have gotten older and wiser, during the time the heifer was under your care, but you will not have gotten any wealthier. If you raised the heifer for $1,250 rather than purchasing her, then you should have created a little wealth as well. If you bought that “fancy” heifer for $2,000, then either you better have lower costs than I assumed, that heifer better produce many “fancy” calves, or the market will have to be higher then I projected for a longer time period. Any, three of these is a possibility, but it is also possible that you have higher costs than I assumed. I am just throwing out a little caution in how hard you chase some of those fancy replacement heifers. They may look nice in your herd, but you may not make any money with them.
I will conclude with the standard disclaimer on all promotional advertising: “These values are based on averages. Individual values will be different. Past performance does not guarantee future returns.”
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