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What Are They Worth??. Determining the Economic Value of a Heifer. Curt Lacy Extension Economist. Current Situation. Relatively high prices Positive expected profits for the next few years Producers looking to recoup some of last few years losses
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What Are They Worth?? Determining the Economic Value of a Heifer Curt Lacy Extension Economist
Current Situation • Relatively high prices • Positive expected profits for the next few years • Producers looking to recoup some of last few years losses • Weather and other events still a major concern
Outlook – Cow-Calf Producers • 2001-2004 – profits • 2005-2008 – losses • 2009 – profits/losses
Cattle numbers usually increase 2 yrs. after cow/calf profits
Three Alternatives to Expand Cow-Herd • Retain heifers from your own herd • Buy heifers (bred or open) • Buy cows (often either bred or as “3-in-1”)
Replacement Female Economic 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)
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 Possible Outcomes
Comparison of Most Likely Scenario for Fall Calving Herd • Retain heifer and breed in December for fall calving • Buy bred heifer next summer for fall calving
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!! Tale of the Tape
Doing the Math – Steps to Follow to Estimate the Economic Value of a Heifer • Develop a budget • Prepare a schedule of expenses and income (cash flow projection) of development phase • Estimate annual returns • Estimate the useful life of the heifer • Estimate the cull value
Items 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 Need • Budgets • Winter pasture • Summer pasture • Vet & Medicine • Shots • Eartags • Minerals • Expected Cull Rate
Doing the Math - Prices & Discounts • Base Price - $90/cwt. for Steers • Discounts • Heifers $5.00/cwt. • #3 muscling $18.00/cwt. • Short-frame $25.00/cwt.
Results - Buying Bred HeiferExpected Profits Pay $700 for heifer in June Retaining Own Heifer – $188.54
Results - Buying Bred HeiferEconomic Value – What can you afford to pay? Retaining own heifer = $685.23
Conclusions • 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
Conclusions • 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
Conclusions • 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. Total U.S. Cattle Inventory
U.S. Cattle Inventory and Prices Total U.S. Cattle Inventory and April prices for 400-500 m1 steers
U.S. Cattle Inventory and Prices Total U.S. Cattle Inventory and April prices for 400-500 m1 steers
Results – Retain Heifer • Expected profits - $68.65
Results - Buying “3 in 1”Expected Profits Pay $750 for combo in June
Results - Buying “3 in 1”What Can You Afford to Pay? Retaining own heifer = $565.34
Overview • Current Situation • Outlook • Replacement Economics • Results
What is the Economic Value of a Heifer? Curt Lacy University of Georgia Extension Economist - Livestock