Today’s high market prices are stimulating talk of herd expansion. Ranchers can either raise or purchase their replacement females, but the most tend to raise them. In fact, my last two columns have focused on this internal expansion decision.
Ranchers tend to focus on the cash-flow costs of raising replacement heifers, but the decision to expand needs to be based on the profitability (full economic costs) of raising replacement heifers. The single biggest economic cost of expanding with raised replacement heifers is the opportunity cost of the market value of the weaned heifer calf that wasn’t sold.
A rancher recently called to ask how I calculated a $544 cost to develop a weaned heifer into a preg-checked female. I will answer that question in this month’s column, illustrating my calculations with an example generated for Eastern Wyoming and Western Nebraska.
Figure 1 presents the input data I use to calculate the economic costs of developing a preg-checked replacement heifer. Once a heifer is checked pregnant, I drop her into the breeding herd and her future costs become part of the total herd’s production costs.
The input data in Figure 1 is for a 2011 spring-born heifer calf weaned at 554 lbs. in November 2011. At that time, the price of weaned heifers was $149/cwt. The mature weight of this female is projected to be 1,250 lbs.
This heifer is to be wintered in a drylot with a May 1, 2012, date to grass. A target average daily gain (ADG) for the drylot will be calculated to allow the heifers to attain 65% of mature weight by breeding time on June 1, 2012, when they will be exposed to the bull.
Summer pasture cost was figured at $17/animal unit (AU). The cost of the bull used on the heifers was $4,000, with each bull servicing 20 heifers. The bulls were in the herd for four years. Cull bulls’ weight was set at 1,900 lbs. and the projected selling price at 75¢/lb. Annual bull feed costs are projected at $350.
Finally, the heifer conception rate is projected at 85%, with preg checking on Oct. 1, 2012. Cull open heifers are projected to sell for $120/cwt.
I use the Figure 1 input numbers in my recommended six steps for calculating the economic costs of developing a replacement heifer:
Step 1: Conception to weaning. The single biggest cost of raising your own replacement heifers is the opportunity cost of not selling her at weaning. In November 2011, heifer calves brought around $149/cwt. Thus, the opportunity cost of not selling this 554-lb. heifer at weaning was $825/head.
Step 2a: Wintering costs (Figure 2). The winter feeding program needs to be developed around a specific ADG target, which depends on the weaning weight and the target breeding weight. I set the target breeding weight at 65% of the 1,250-lb. mature weight, or 813 lbs. The target breeding date is June 1, 2012. This calculates to a 182-day winter drylot period and 31 days on grass before breeding. The target weight to grass is 766 lbs., which requires a winter drylot ADG of 1.16 lbs. This is the target ADG for the wintering ration (Figure 2).
This target ADG of 1.16 lbs./day was used to formulate a ration for feeding a 554-lb. heifer calf through the winter. The primary ingredient was $130/ton alfalfa hay. A small amount of grain was added, as well as salt and mineral. As shown in Figure 3, winter feed cost totals $237/head. After including lot cost ($18), interest on investment ($21, at 5%), and death loss ($21, at 2%), total wintering costs are $304/head. Be sure to base feed costs on the local market price of the feeds, not cash costs of production.
Step 2B: Wintering to breeding (Figure 4): The $304 wintering cost in Figure 3 takes the heifers to grass on May 1, 2012. The cost of pasture and supplement brings the total wintering-to-breeding costs (Figure 4) to $321/head.
Grass cost should be based on the going rental rate in your local area. In this case, it was calculated at $13.60/animal month, based on a $17/AU going rental rate. A 766-lb. heifer was figured at 0.8 AU.
Step 3: Breeding to preg-check time (Figure 5): This period has 4.1 months of grazing ($50), supplement costs while on grass ($4), breeding costs ($56), and interest on animal investment costs ($19, at 5%) for an added total of $129/head.
Step 4: Cost summary: Figure 6 pulls all the period costs into one subtotal of $1,275/heifer. Since not all heifers get pregnant, this $1,275 cost must be divided by the conception rate to calculate the total cost of a pregnant replacement heifer. This comes to $1,500 ($1,275/0.85).
But you now have to adjust for the value of the cull open heifers. These culls should average 813 lbs. with a projected price of $120/cwt. The cull heifer adjustment brings the cost of developing a replacement heifer back down to $1,354/preg-checked heifer.
This 2011 heifer calf developed in 2012 is likely the most expensive heifer you’ve developed. It’s a record, however, that’s likely to be broken with the development of 2012 heifer calves in 2013, because the opportunity cost of not selling your 2012 heifer calves at weaning will be at an all-time high.
In summary, the biggest cost associated with heifer development is the opportunity cost of the heifer calf at weaning ($828). This is then supplemented with an on-ranch development cost of another $529. Now the rancher who phoned me knows how I arrived at the $500+ heifer-development cost in my previous column.
Harlan Hughes, a North Dakota State University professor emeritus, can be reached at 701-238-9607 or firstname.lastname@example.org.