The national beef cow inventory is at a 50-year low, and long-run corn prices are projected to trend lower. These are two positive indicators for today’s beef industry.
By the time that you read this, you should have a good idea of the summer rainfall in your area. Assuming that rainfall is sufficient to consider adding bred heifers to your herd, I’ll share my projections for the economic value of a bred heifer entering a beef cowherd in fall 2013.
Today’s economic value of a bred heifer will be influenced by calf prices over the rest of this decade. Figure 1 presents last month’s suggested planning prices summarized in five-year segments. There are two key points about these long-run planning prices.
Let’s calculate the economic value of a pregnancy-checked heifer. The economic value of a bred heifer in your herd is the sum of the annual net cash incomes produced from all of the calves she weans while in your herd. In order to express this value in 2013 dollars, these future net cash incomes need to be discounted back to today’s dollars. Conceptually, this is a straightforward process; however, in actual practice, it requires a large number of calculations. Thank goodness for computers.
Figure 2 summarizes my calculations for the economic value of a bred heifer preg-checked in fall 2013. My basic assumptions are that these calculations are for a straight-bred heifer that has seven consecutive calves while in my example herd. The discount factor used was 3% — the lowest discount factor I’ve ever used in calculating the economic value of a bred heifer. The female is assumed culled and sold in year 2020 after producing seven consecutive calves.
Let’s discuss each column in Figure 2:
But there’s more to this story. If one were to purchase a package of 100 heifers, not all will produce seven consecutive calves; some heifers will be culled each year. The annual culling rate typically starts out high for the 3-year olds, and goes lower as the females mature, reaching the low around the fourth or fifth calf. The annual culling rate typically goes up slightly as females approach the end of their productive years.
My research suggests that by the end of the seventh calf crop, 62 of the original 100 heifers will have been culled. These 62 culled females can’t be valued at the above $2,691 — they will be worth less, depending on how many lifetime calves they raised. The fewer lifetime calves a culled female produces, the lower the value of that culled female.
While I actually calculate the economic value of alternative lifetime calves from one through six calves, space doesn’t allow me to present these alternative tables. In summary, a heifer having one lifetime calf is valued at only $1,209; two calves,at $1,502; three calves, at $1,849; four calves, at $2,110; five calves, at $2,352; six calves, at $2,540; and seven calves, at $2,691. A heifer that is open for her second calf, but kept in the herd anyway, and then has five more consecutive calves, is valued at $1,854.
Now back to the purchase of 100 heifers. With the 62 head culled over the seven-year period, my calculated economic value of the 100 head purchased is reduced to $1,992/head.
My final answer to the question “What is the current economic value of a preg-checked heifer in the fall of 2013?” is $1,992/head.
In February 2013, I calculated it would cost $1,418 to raise a 2013 preg-checked replacement heifer. Is this calculated difference between the $1,418 calculated development cost and the $1,992 calculated economic value enough to stimulate a national herd expansion? For those with ample rainfall this summer, I believe it is.
Harlan Hughes is a North Dakota State University professor emeritus. He lives in Laramie, WY. Reach him at 701-238-9607 or firstname.lastname@example.org.
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