Read Heifer Economics: Part 2

Fall calf prices peaked in 2005, and the current beef-price cycle is expected to trend lower as the cycle plays out. Thus, measuring and controlling heifer-replacement costs over the next 3-4 years is critical.

Managing home-raised, replacement-heifer numbers has much more impact on the unit cost of producing a hundredweight of calf (UCOP) than ranchers typically believe. The quickest way to increase UCOP is to hold back added replacement heifers. Conversely, the quickest way to lower UCOP is to reduce the heifer calves held back as replacements.

Where the cost of raising replacement heifers is concerned, cash accounting will lead most ranchers down a primrose path. That's because it underestimates the true economic costs of raising replacement heifers. In fact, I project some ranchers will lose substantial money raising replacement heifers over the next few years and not even be aware of it.

Ranchers are currently producing record high-cost replacement heifers destined to produce low-priced calves for the rest of this decade and into the next — a recipe for financial stress.

The cost of replacement heifers should be based on “economic costs” (opportunity costs), not “cash costs.”

  • If you don't hold back replacement heifers, you have the “opportunity” to sell them at weaning.

  • The feed used to raise replacement heifers could be sold, or fed to other animals.

  • If you don't develop your own replacement heifers, you can run more mature cows.

Six calculation steps

There are six steps in calculating your costs for home-raised replacements (Figure 1). To simplify the process, I consider three development phases. After checking pregnancy, the bred replacement heifer is integrated into the regular beef-cow breeding herd.

Figure 2 presents the heifer-replacement data for an example rancher who developed heifers in 2006 that weighed 500 lbs. at weaning on Nov. 1. All the input data in Figure 2 suggests this rancher needs to garner 266 lbs. of the necessary 313 lbs. of total gain during his 181-day wintering program. His wintering average daily gain (ADG) target is 1.47 lbs./day.

Let's use this three-step process to calculate the cost of developing 2006 replacement heifers for an example western Nebraska herd.

I: Conception to weaning

The first step is to place a market value on the weaned heifer calves to arrive at an opportunity cost had they been sold. In this example, a 500-lb. heifer is valued at $127/cwt., or $635/head.

That opportunity cost is directly tied to the market price at weaning, which changes each year (Figure 3). Figure 3's top line presents the long-run prices of October 500- to 600-lb. steer calves over the last beef price cycle (1985-1996), along with planning-price projections for the current cycle to the end of this decade. While heifer prices generally tend to follow steer-calf prices, there's also a cyclical trend in the heifer discount (Figure 4).

II: Weaning to breeding

The weaning-to-breeding phase can be divided into wintering costs and a short summer grazing phase before breeding.

  • This ranch's heifer calves will be drylotted for the winter on the ranch, then put on grass in spring 2007. Based on the mature weight of the cow herd, this rancher calculated a winter gain of 266 lbs. and a target ADG of 1.47 lbs./day. He then developed a winter-feeding program for that 1.47-lb. ADG target.

    Figures 5 and 6 summarize a winter-feeding simulation based on a 1.47-lb. target. The feeds considered were corn grain, alfalfa hay and a supplement and mineral program, the costs of which were quite high in winter 2006-07. Thus, the feed cost of this winter heifer-development program was also quite high.

    As summarized in Figure 6, lot costs covered operational repairs of the existing winter feedlot. Total wintering costs came to $276/heifer calf being wintered.

    Cost of gain totaled $1.04/lb. Had these heifers been sold at the end of winter, the breakeven price would have been $119/cwt. However, these heifers were not sold.

  • On May 1, 2007, these wintered heifers will go on grass for 31 days before breeding (Figure 7). It's important to base your grass costs on 2007 opportunity costs. In this case, grass was priced at $20/animal unit month (AUM), with each heifer expected to consume 0.9 AUM of grass/month. After including salt and mineral costs, the wintering-to-breeding costs are projected to total $299/head.

III: Breeding to fall preg-check

Phase 3 covers breeding on grass through pregnancy-check in the fall. Breeding costs are calculated based on a $2,000 bull depreciated over four years, and a total lifetime of breeding 100 heifers, costing $36/heifer. Total Phase 3 costs are projected to total $134/heifer (Figure 7).

Total projected costs

Total costs for the three phases are $1,068/heifer (Figure 8), but not all heifers checked pregnant. An 85% conception rate was assumed, adjusting the cost of a pregnant heifer to $1,256 ($1,068/0.85).

When this total cost is adjusted for the cull value of the open heifers, the final cost to produce a pregnant heifer is reduced to $1,146. This final number includes a development cost of $511/heifer plus the $635 market value of the heifer calf at weaning.

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. Calculating the costs to develop a replacement heifer
Steps:
1 Phase 1: Conception to weaning
2 Phase 2: Weaning to breeding
3 Phase 3: Breeding to pregnancy check
4 Total costs for all three periods
5 Adjust for heifer-conception rate
6 Adjust for cull heifer credit
Figure 2. Beef replacement heifer template
Weaning weight 500
Weaning date 11/1/2006
Mature weight of cows (lbs.) 1,250
Target breeding weight (lbs.) 813
Difference (lbs.) 313
Date to grass 5/1/07
Target breeding date 6/1/07
Days on grass 31
Target ADG on grass (lbs.) 1.5
Days on winter feed 181
Target winter gain (lbs.) 266
Target weight to grass (lbs.) 766
Target winter ADG (lbs.) 1.47
Figure 5. Feeds used to winter replacement heifers
Feed ration data
Feed Moisture DM lbs./day Feed used/head Feed Price
Corn 14.00% 8.29 39 bu. $3.34/bu.
Salt & minerals 99.00% 0.00 0.023 tons $150.00/ton
Alfalfa hay 10.00% 4.75 0.61 tons $130.00/ton
Rumensin 0.00% 0.00 0.23 lbs. $524.60/ton
Limestone 0.00% 0.00 0.23 lbs. $121.00/ton
Total dry matter 89.17% 13.04 2,992 lbs. $214 total
As-is pounds 14.63 3,355 lbs. $7.16/cwt.
Figure 6. Cost summary for wintering period
Item Cost/head Cost/lb. gain
Feed $214 $0.80
Lot $18 $0.07
Interest $22 $0.08
Vet & medicine $7 $0.03
Transportation $0 $0.00
Processing $0 $0.00
Death loss ($) $15 $0.06
Total $276 $1.04
Breakeven selling price = $119/cwt.
Breakeven buy/sell margin = -$8.07
Gain = 266 lbs.
Figure 7. Wintering to preg-check costs
Wintering costs $276
Pasture costs to breeding $20.00/AUM (31 days) $18.60
Supplemental feed on pasture 0.19 lbs./day @ $0.13/lbs. $0.74
Interest on previous investment $3.78
Total $299
Grazing costs 6/1/07 to 10/1/07 $73.20
Supplemental feed on pasture 0.19 lbs./day @ $0.13/lb. $2.90
Breeding costs $2,000 bull servicing 20 females/year for 4 years Cull bull weighs 1,900 lbs. @ $0.51/lbs. = feed cost = $350/year Interest costs = $104/year @ 7% $36
Interest costs $22
Total $134
Figure 8. Projected cost to develop a 2006 replacement heifer
Period 1: Conception to weaning $635
Period 2: Weaning to breeding $299
Period 3: Breeding to pregnancy check $134
Subtotal $1,068
Adjust for heifer conception rate (85%) $1,256
Adjust for cull heifer credit $1,146
Calculated heifer development costs $511