Making the Replacement Heifer Decision

1
What Are They Worth??
Determining the Economic Value of a Heifer
Curt Lacy Extension Economist
2
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

3
Outlook Cow-Calf Producers

• 2001-2004 profits
• 2005-2008 losses
• 2009 profits/losses

4
Cattle numbers usually increase 2 yrs. after
cow/calf profits
5
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)

6
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)

7
Possible 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

8
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

9
Tale 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!!

10
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

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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

12
Items You Will Need

• Budgets
• Winter pasture
• Summer pasture
• Vet Medicine
• Shots
• Eartags
• Minerals
• Expected Cull Rate

13
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.

14
Retain Heifer
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Buying Bred Heifer
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Results - Buying Bred HeiferExpected Profits
Pay 700 for heifer in June Retaining Own Heifer
188.54
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Results - Buying Bred HeiferEconomic Value
What can you afford to pay?
Retaining own heifer 685.23
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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

19
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

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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

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Heifer Percentage of FI U.S. Slaughter vs. Total
U.S. Cattle Inventory
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U.S. Cattle Inventory and Prices
Total U.S. Cattle Inventory and April prices for
400-500 m1 steers
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U.S. Cattle Inventory and Prices
Total U.S. Cattle Inventory and April prices for
400-500 m1 steers
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Recent Prices
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Results Retain Heifer

• Expected profits - 68.65

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Results - Buying 3 in 1Expected Profits
Pay 750 for combo in June
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Results - Buying 3 in 1What Can You Afford to
Pay?
Retaining own heifer 565.34
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Overview

• Current Situation
• Outlook
• Replacement Economics
• Results

29
What is the Economic Value of a Heifer?

• Curt Lacy
• University of Georgia
• Extension Economist - Livestock