Market Advisor

The Next Decade: Part III

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A key determinant of a beef cowherd's cost structure is the cost of replacement females. That's because the economic impact of high-cost replacements stay with that herd for the life that those females remain in the herd.

Beef cowherds should be classified as “high cost” or “low cost” based on their unit cost of producing a hundredweight of calf (UCOP). High-cost replacement females can lead to a high UCOP and low-cost replacement females can lead to a low UCOP.

Replacement females can be raised or purchased, but the wish for genetic control leads many ranchers to raise them. Last month, we discussed the profitability vs. feasibility of raising replacement heifers. Only after determining that raising replacement heifers is profitable should ranchers consider the feasibility of such a project.

Ranchers have a tendency to focus solely on the feasibility (cash costs) of raising replacement heifers, which ignores the market value of the heifer calf at weaning. A proper decision requires that a rancher calculate the profitability (full economic cost) of raising his replacements. After all, the market value of the weaned heifer calf is the biggest economic cost of raising a replacement heifer.

Here is the procedure I recommend a rancher employ in calculating his full economic costs of raising replacements. This illustration is based on my suggested numbers for eastern Wyoming and western Nebraska.

Figure 1 presents the herd-specific input numbers needed to calculate the full economic cost of raising replacement heifers. I'll discuss the key input numbers as I explain my example analysis.

My suggested procedure for determining the costs of raising a replacement heifer involves six specific steps:

  • Conception to weaning.
  • Weaning to breeding.
  • Breeding to fall pregnancy check.
  • Total costs for all three periods.
  • Adjust for heifer-conception rate.
  • Adjust for cull-heifer credit.

Period 1 — conception to weaning

The price of heifer calves at weaning is the price a rancher would have received if he'd sold the heifers at weaning; this price can vary by the quality of the calves. For example, in mid-November 2009, 1,421 heifer calves (553-599 lbs.) sold in western Nebraska for a $93.04/cwt. average. At this same time, 26 fancy heifer calves averaging 555 lbs. sold for $102.50.

It's important to place a realistic market value on weaned calves held back for heifer replacements. I elected to use $100/cwt. in my example analysis.

Period 2 — weaning to breeding

The weaning-to-breeding period is broken into two time segments — wintering costs and grazing through breeding. Wintering costs requires some added information to determine a target average daily gain (ADG) for the wintering rations (Figure 3). Three key heifer weights are needed: average weaning weight, average target breeding weight and a target weight to grass. These three numbers in my example herd are a 530-lb. average weaning weight, an 813-lb. target breeding weight based on 65% of mature weight and a target 766-lb. weight to grass.

In my example analysis, the 131-day wintering ADG calculates to 1.30 lbs. Figure 4 uses these numbers and presents the projected $291.68 average wintering costs. The breakeven selling price at the end of the winter feeding program is projected to be $107/cwt.

These replacement heifers are targeted to be bred June 1, 2010 on grass, so there will be a short grazing period before breeding. While the grazing fee used was $17/animal unit month (aum), a growing heifer is considered 0.8 of an aum. The combined cost of wintering and grazing until breeding is projected at $308/replacement heifer (Figure 5).

Period 3 — breeding to preg-check time

Pasture costs should again be based on local going rental rates (opportunity cost) of the grass. After taking into account mineral and salt costs while grazing, total breeding to preg-check projects to $115/replacement heifer (Figure 6).

Projected total costs

The top half of Figure 7 summarizes the projected cost of raising a replacement heifer. In my example analysis, this totals $953/head from conception through preg-check.

Adjust for heifer conception rate

This $953 number, however, must be adjusted for the projected pregnancy rate of these potential replacement heifers. Given my suggested 85% pregnancy rate for first-calf heifers, this number adjusts to $1,121 ($953/0.85)/heifer checked pregnant.

Adjust for cull heifer credit

This $1,121 cost number should also be adjusted for the market value of the cull open heifers sold. Thus, the final adjusted projected cost of raising a replacement heifer is $1,012/pregnant heifer.

The projected cost of developing the pregnant heifer was $482 and the market value of the heifer calf at weaning was $530. That's a total projected cost of $1,012 to develop a 2009 heifer into a pregnant replacement female to enter the breeding herd in fall 2010.

I normally focus my replacement-heifer costs on the cost of developing a preg-checked heifer to be transferred into the breeding herd at preg-check time. This $1,012 heifer is projected to have her first calf in spring 2011. Thus, she'll have to be fed for one more complete year before she actually produces her first weaned calf.

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

Figure 1. Input numbers needed for cost analysis of replacement heifers

Year heifers born 2009
Average weaning weight of heifers (lbs.) 530
Weaning date Nov. 1, 2009
Price of heifer calves at weaning ($/cwt.) $100
Mature weight of cow herd (lbs./cow) 1,250
Spring date to grass May 1, 2010
Target average daily gain (ADG) on grass (lbs.) 1.5
Supplemental feed while on grass lbs./day 0.19
Cost/lb. of feed $0.13 $0.02
Target breeding date June 1, 2010
Heifer wintering costs ($/head) $292
Feed costs, $215; Lot costs, $34.87; Interest cost, $18.55 (7%); Vet & medicine costs, $8.26; Transportation costs, $0; Processing costs, $0; Death loss, ($) $15 = Subtotal $291.68
Going pasture rents in local area ($/AUM) $17
Date preg-checked Oct. 1, 2010
Breeding costs/heifer $43
Price of heifer bulls, $2,500; Servicing number of heifers, 20; For how many years, 4; Cull bull weight, 1,900; Cull bull selling price, ($/cwt) $0.51; Annual bull feed costs, $350
Heifer average conception rate (% age) 85%
Market price of cull open heifer ($cwt.) (at preg-check time) $90

Figure 2. Economic value of replacement heifer at November 2009 weaning

530 lbs. @ $100/cwt. = $530/heifer calf

Figure 3. Data used to calculate winter target average daily gain (ADG)

Weaning weight (lbs.) 530
Weaning date Nov. 1, 2009
Mature weight of cows (lbs.) 1,250
Target breeding weight (lbs.) 813
Weight to be added (lbs.) 283
Date to grass May 1, 2010
Target breeding date June 1, 2010
Days on grass 31
Target ADG on grass 1.5
Days on winter feed 181
Target winter gain (lbs.) 236
Target weight to grass (lbs.) 766
Target winter ADG (lbs.) 1.30

Figure 4. Projected wintering costs

Gain=236 lbs.

Item Cost per head Cost per lb. gain
1. Feed cost $215.00 $0.91
2. Lot cost $34.87 $0.15
3. Interest $18.50 $0.05
4. Vet & medicine $8.26 $0.04
5. Hauling replacement $0.00 $0.00
6. Processing $0.00 $0.00
7. Death loss $15.00 0.06
Total $291.68 $1.24
Breakeven selling price = $107-price was $103
Breakeven buy/sell margin = $7.27

Figure 5. Projected wintering to breeding costs

Wintering costs $291.68
Pasture costs to breeding (31 days) $12.65
Supplemental feed on pasture (0.19 lbs./day @ $0.13 lb.) $0.74
Interest on previous investment (7%) $3.15
Total $308

Figure 6. Projected breeding to preg-check costs

Grazing costs (Start date June 1, 2010 = 4.1 months @ $13.60/month) 49.78
Supplemental feeding on pasture (0.19 lbs./day @ $0.13/lb.) $2.90
Breeding costs $43
$2,500 bull serving 20 females/year for 4 years
Feed cost = $350/year
Interest costs = $121/year @ 7%
Interest costs (7% × $835 for 122 days) $20
Total $115

Figure 7. Projected costs for raising 2009 replacement heifers

Period 1: Conception to weaning $530
Period 2: Weaning to breeding $308
Period 3: Breeding to pregnancy check $115
Sub-total $953
Adjust for heifer conception rate (85%) $1,121
Adjust for cull heifer credit ($90/813) $1,012
Calculated heifer development costs (2009 born) $482
What's Market Advisor?

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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