Market Advisor

Year-End Analysis Shows Replacement Costs Are Surging

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The market is now signaling that ranchers are starting to hold back replacement heifers.

Man, do I like selling feeder calves when cattle feeders are making money! My mid-October analysis indicates cattle feeders made $95/head sold in October, while replacement feeder prices were at an all-time high. Instead of a price discount at weaning, there was a price premium at 2013’s weaning. It looks like the production and marketing for my study herd made some money in 2013.

Regardless of the ultimate marketing choice, I urge ranchers to always look at the economics of selling weaned calves. A beef-cow enterprise year should end its accounting year with the weaning of that year’s calves, regardless of the final marketing alternative selected.

I’ll focus this month on a detailed analysis of a study herd’s gross income for the cowherd, and the total cost of all replacement animals. This ranch has maintained a static herd of 250 cows for the last several years, but the rancher is considering expansion for 2014. He needs as much detail as possible to help him make a decision. I’ll summarize his production costs next month.

production parameters for cowherdMy study herd consists of 250 bred cows in the Jan. 1, 2013, herd inventory. Figure 1 summarizes this herd’s production parameters. The number of females exposed in the 2012 breeding season was 294 head (250 mature cows and 44 virgin heifers). Meanwhile, 256 live calves were weaned for an 87% calf crop.

The pounds weaned per female exposed averaged 494 lbs./cow. The herd’s annual culling percentage was 14% of the Jan. 1, 2013, beef-cow inventory. Heifer conception rate was 80%, and 1% of the cowherd died during the year.

Let’s now review October’s weaning prices. Figure 2 presents my eastern Wyoming/western Nebraska October sale-barn price summary for mid-October 2013. Clearly, these are record October steer calf prices, as 550-lb. steer calves averaged $198/cwt., and 800-lb. steers averaged $163/cwt. Figure 2 also illustrates the overall increase in calf prices over October 2012 calf prices.

Meanwhile, my study herd’s steer calves averaged 569 lbs. and sold for $192/cwt. The heifer calves averaged 554 lbs. and sold for $188/cwt.

eastern wyoming sale barn numbers

Figure 3 summarizes the 2012 and 2013 actual prices for eastern Wyoming/western Nebraska, with projections for 2014. Projections for 2014 weaned calves are comparable to this year’s favorable prices.

The biggest surprise for me was this month’s reduction in the discount prices for heifers relative to steers. Figure 4 presents the calculated price line for eastern Wyoming/western Nebraska steers, and a second line for heifers at the same markets. The difference between these two lines at any given calf weight is the heifer discount. Over the total range, the heifer discount averaged $13.54/cwt.

The six higher points on the heifer price line illustrate the market premiums for “fancy” heifers, which had a discount of only $5.56/cwt. Thus, we now have record steer-calf prices and a narrowing heifer discount. All of this adds gross income to the 2013 beef cowherd.

October 2013 sale-barn price

If I look at only those heifers between 500-700 lbs., which would be my recommended weight for replacement heifers, the discount is only $3.50/cwt. Good quality, fancy replacement-heifer calves are approaching the price of steers at comparable weights. The market is now signaling that ranchers are starting to hold back replacement heifers.

Figure 5 presents the 2013 gross income calculations for this 250-cow study herd. The two important numbers in Figure 5 are “gross income/cow” and “herd replacement costs/cow” in the bottom right of the chart.

gross income

Figure 5 shows that a total of 211 calves (128 steers and 83 heifer calves) were sold for a cash income of $230,077 ($143,769 for steer calves and $86,308 for heifer calves). Calf sales, however, generated only 85% of the total gross income.

Cull animals accounted for the other 15% of cash income, or a total of $42,113. Nine open heifers were culled for a market value of $8,543, while 32 cull cows brought $29,440, and three culled bulls brought $4,130. No bred cows or cow-calf pairs were sold this year.

Gross cash income generated by this herd totaled to $272,190 ($230,077 calf sales + $42,113 cull animal sales), or $1,089/cow. This is a record high.

While the market value of the 44 heifer calves retained totaled $46,029 and was produced this business year, it wasn’t an actual cash income. The herd’s total value of animal production (VAP) this year was $276,106 ($230,007 + $46,029). Cull animal sales aren’t included. Thus, the VAP for this herd was $1,104/cow.

The heifer development enterprise cost this rancher $555/head, or $24,420 — the cost of developing the last set of heifers from 2012 weaning until preg-check in fall 2013. Add in the $39,366 lost market value of not selling the replacement heifer calves at 2012’s weaning, and the total economic cost of developing these replacement heifers came to $1,450/replacement heifer. This is the cost before preg-checking.

Probably the most shocking number in Figure 5 is the economic cost of replacement animals for this herd. The economic cost of replacement females, plus replacement bulls, totals $329/cow in the Jan. 1, 2013, inventory. This number has really increased in recent years.

Harlan Hughes is a North Dakota State University professor emeritus. He lives in Kuna, ID. Reach him at 701-238-9607 or harlan.hughes@gte.net.

 

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Harlan Hughes has spent a professional lifetime helping U.S. beef producers better manage the business end of their beef cow operations.

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Harlan Hughes

Harlan Hughes is a North Dakota State University professor emeritus and author of the monthly "Market Advisor" column that appears in BEEF magazine. He also consults and lectures widely,...

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