Curt Lacy Extension Economist. Current Situation Relatively high prices Positive expected profits...

Curt LacyCurt Lacy

Extension EconomistExtension Economist

Current SituationCurrent Situation

Relatively high pricesPositive expected profits for the next few

yearsProducers looking to recoup some of last

few years lossesWeather and other events still a major

concern

Outlook – Cow-Calf ProducersOutlook – Cow-Calf Producers

2001-2004 – profits2005-2008 – losses2009 – profits/losses

Cattle numbers usually increase 2 yrs. Cattle numbers usually increase 2 yrs. after cow/calf profits after cow/calf profits

Three Alternatives to Expand Three Alternatives to Expand Cow-HerdCow-Herd

Retain heifers from your own herdBuy heifers (bred or open)Buy cows (often either bred or as “3-in-1”)

Replacement Female Replacement Female Economic ConsiderationsEconomic Considerations

Production– Percentage calf crop– Weaning weight– Frame size/Muscle score

Economic– Development costs– Market value of female

Price-Position in Cattle Cycle– Expected prices– Effect of Frame/Muscle score on price (read discounts)

Possible OutcomesPossible Outcomes

Base – 90% L/M-1/2– 10% #3 muscling

Alternative 1– 80% L/M-1/2– 10% L/M-3 – 10% S1/2

Alternative 2– 70% L/M-1/2– 15% L/M-3 – 15% S1/2

Alternative 3– 60% L/M-1/2– 20% L/M-3 – 20% S1/2

Comparison of Most Likely Comparison of Most Likely Scenario for Fall Calving HerdScenario for Fall Calving HerdRetain heifer and breed in December for fall

calvingBuy bred heifer next summer for fall

calving

Tale of the TapeTale of the Tape

Retaining Your Own– Advantages

Known genetics Capability to build on

past genetic decisions Price??

– Disadvantages Inferior genetics Foregoing of current

sales Additional management

required to develop and breed heifers

Buying Bred Heifers– Advantages

Improve genetics Saves time and trouble

of managing and breeding replacements

– Disadvantages Unknown genetics Sources?? Price!!

Doing the Math – Steps to Follow Doing the Math – Steps to Follow to Estimate the Economic Value to Estimate the Economic Value

of a Heiferof a Heifer1. Develop a budget

2. Prepare a schedule of expenses and income (cash flow projection) of development phase

3. Estimate annual returns

4. Estimate the useful life of the heifer

5. Estimate the cull value

Items You Will NeedItems You Will Need

Prices– Expected calf prices– Adjustments for quality grades– Cull prices– Price for the heifer???

Production– Expected production

Weaning weights Conception rates

Items You Will NeedItems You Will Need

Budgets– Winter pasture– Summer pasture– Vet & Medicine

Shots Eartags Minerals

Expected Cull Rate

Doing the Math - Prices & Doing the Math - Prices & DiscountsDiscounts

Base Price - $90/cwt. for SteersDiscounts

– Heifers $5.00/cwt.– #3 muscling $18.00/cwt.– Short-frame $25.00/cwt.

Retain HeiferRetain HeiferHeifer Development Budget - Buy 625# heifer Oct.2001, breed 700# Dec. 2001, calve Oct. 2002Item Unit Cost/unit Quantity Item costHeifer cwt. 80.00$ 6.25 500.00$ Winter Pasture ac 57.23$ 0.4 22.89$ Coastal Pasture ac 96.10$ 1 96.10$ Hay roll 25.00$ 3 75.00$ Mineral hd 16.00$ 1 16.00$ Ear Tags hd 2.80$ 1 2.80$ Vet & Med hd 24.90$ 1 24.90$ Labor hrs 7.00$ 1.5 10.50$

Total Variable Costs hd 748.19$ Interest hd 0.08$ 374.10$ 29.93$ Non-breeders percent 778.12$ 0.15 116.72$ Total Costs of Retaining Heifers hd 894.84$

Adjustment for cull sales hd 75.00$ 1.05 78.75$

Total net costs for retaining heifers 816.09$

Buying Bred HeiferBuying Bred HeiferHeifer Development BudgetBuy 800 # bred heifer in J une

Item Unit Cost/ unit Quantity Item costHeifer cwt. 87.50$ 8 700.00$ Winter Pasture ac 57.23$ 0 -$ Coastal Pasture ac 48.00$ 1 48.00$ Hay roll 25.00$ 0 -$ Mineral hd 8.00$ 1 8.00$ Ear Tags hd 2.80$ 1 2.80$ Vet & Med hd 24.90$ 1 24.90$ Labor hrs 7.00$ 0.75 5.25$

Total Variable Costs hd 788.95$ Interest hd 0.08$ 394.48$ 31.56$ Non-breeders percent 820.51$ 0 -$ Total Costs of Buying Bred Heiferhd 820.51$

Results - Buying Bred HeiferResults - Buying Bred HeiferExpected ProfitsExpected Profits

500 Pounds

475 Pounds

450 Pounds

Base $176.86 $78.20 ($20.45)

Scenario 1 $121.79 $25.89 ($70.01)

Scenario 2 $66.72 ($26.43) ($119.57)

Scenario 3 $11.65 ($78.74) ($169.13)

Pay $700 for heifer in June

Retaining Own Heifer – $188.54

Results - Buying Bred HeiferResults - Buying Bred HeiferEconomic Value – What can you afford to pay?Economic Value – What can you afford to pay?

500 Pounds

475 Pounds

450 Pounds

Base $836.22 $737.57 $638.91

Scenario 1 $781.15 $685.25 $589.35

Scenario 2 $726.09 $632.94 $539.79

Scenario 3 $671.02 $580.63 $490.23

Retaining own heifer = $685.23

ConclusionsConclusions

Producers should carefully consider their source of replacement heifers

Purchasing heifers can be a profitable alternative Key considerations:

– Price of the replacement animal– Expected profits from the asset

Price Production

– Longevity

ConclusionsConclusions

Considerations– Retaining your own heifers allows you to take

advantage of past breeding decisions– Retaining your own heifers reduces the variability of

the calf crop and makes it easier to group calves in more uniform lots

– Purchasing females of unknown genetics increases variability of calf crop and returns

– Purchasing females of known genetics can improve profits

ConclusionsConclusions

Bottom Line-Retaining and developing your own replacement females or females of known genetics gives you:– Better control – reduced variability in genetics– Predictable production– Greater uniformity in calf crop– Increased ability to sell in larger lots higher

price

Heifer Percentage of FI U.S. Slaughter vs. Heifer Percentage of FI U.S. Slaughter vs. Total U.S. Cattle InventoryTotal U.S. Cattle Inventory

0

20000

40000

60000

80000

100000

120000

140000

1 2 3 4 5 6 7 8 9 10 11 12 13

Year of Cattle Cycle

US

Ca

ttle

In

ve

nto

ry

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

He

ife

r% o

f F

I S

ltr

1967-79

1979-90

1990-?

1967-79%

1979-90%

1990-?%

U.S. Cattle Inventory and PricesU.S. Cattle Inventory and Prices

Total U.S. Cattle Inventory and April prices for 400-500 m1 steers

GA Steer Prices vs. Total U.S. Cattle Inventory

0

20000

40000

60000

80000

100000

120000

140000

1 2 3 4 5 6 7 8 9 10 11 12 13

Th

ou

san

ds o

f h

ead

$-

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$/c

wt.

1967-79 73-79 prices

U.S. Cattle Inventory and PricesU.S. Cattle Inventory and Prices

Total U.S. Cattle Inventory and April prices for 400-500 m1 steers

GA Steer Prices vs. Total U.S. Cattle Inventory

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

1 2 3 4 5 6 7 8 9 10 11 12

$-

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

$/cw

t.

1990-?? 90-?? prices

Recent PricesRecent Prices

Results – Retain HeiferResults – Retain Heifer

Expected profits - $68.65

Results - Buying “3 in 1”Results - Buying “3 in 1”Expected ProfitsExpected Profits450

Pounds425

Pounds400

Pounds

Base $181.84 $107.86 $33.89

Scenario 1 $164.85 $91.82 $18.79

Scenario 2 $130.88 $59.73 ($11.41)

Scenario 3 $96.60 $27.65 ($41.61)

Pay $750 for combo in June

Results - Buying “3 in 1”Results - Buying “3 in 1”What Can You Afford to Pay?What Can You Afford to Pay?

450 Pounds

425 Pounds

400 Pounds

Base $897.75 $823.78 $749.80

Scenario 1 $880.77 $807.73 $734.70

Scenario 2 $846.79 $775.65 $704.50

Scenario 3 $812.82 $743.56 $674.31

Retaining own heifer = $565.34

OverviewOverview

Current SituationOutlookReplacement EconomicsResults

What is the Economic Value of What is the Economic Value of a Heifer?a Heifer?Curt Lacy

University of Georgia

Extension Economist - Livestock