Jim McGrann, Texas A&M University emeritus professor, sent me a write-up and spreadsheet this week that provided a very sophisticated way of calculating the actual costs of a bull, and the impact of bull prices. The Excel spreadsheet allows one to adjust and play with the numbers, an exercise that was a lot of fun and illustrated to me some of the misconceptions we have about valuing bulls.
First of all, we’re all guilty of not including all the factors in determining the per-cow service costs. Most of us don’t figure death loss, interest rates and all the fixed costs associated with purchasing and maintaining a bull battery. Using McGrann’s basic assumptions (most of us would use more optimistic numbers for weaning percentage, weaning weight, etc.), I think his numbers are probably pretty reflective of industry averages.
We’re all probably guilty of looking at bull costs as a one-time expense – the way we view feed, for instance. In reality, however, a bull is a four- to five-year investment.
One of the interesting things about this analysis is that the average service cost per cow – when all costs are taken into account – is higher than most people would calculate. For example, using conservative production assumptions, the average service cost for a $4,500 bull that is turned out with 25 cows/year is $63.14/cow. Interestingly, however, bull cost is not a huge driver in that equation. The difference of paying $3,750 for a bull and paying $5,250 for a bull doesn’t affect the service cost per cow that dramatically.
In fact, the difference between a $3,750 bull and a $5,250 bull only moves the average cost per cow serviced by $9/cow. When one looks at today’s price levels and value differences, the higher-priced bulls are actually a whole lot better investment than the lower-priced bulls.
Buying cow fresheners is a much worse decision than I ever realized; it actually doesn’t reduce costs that much and really decreases revenue. Of course, paying more for a bull doesn’t always mean you’re purchasing more genetic value; if you can buy a bull worth $5,500 in today’s market for $4,500, that’s a real savings of $1,000.
Another interesting component about McGrann’s analysis is how sensitive it is to cow service number rates. If a $3,750 bull with the assumptions I used was turned out with 30 cows, his service cost was $45.12/cow. If he’s turned out with 20 cows, that jumps to $67.68/cow.
Price doesn’t have much effect on this relationship either, but the number of cows a bull services has a dramatic impact on his value. If you’ve ever seen a commercial bull bring $9,000 and wondered how that can work out, odds are that producer has both a fall and spring program of significant numbers. The odds are that bull will actually cost that producer less than a bull that costs $3,000 and is turned out with 15 cows.
Another way of looking at the impact of bull price is the impact of weaning weight. How much additional weaning weight would be required to justify paying $5,250 vs. $3,750/bull, assuming all other attributes remained the same? The difference was only 12 lbs. of weaning weight!
I’ve always been a value guy; with limited cash flows, I’ve always focused on initial costs. As is so often the case, the initial cost often is a small part of the ultimate price, but is a big determinant of overall profitability.
As an industry, we still tend to look at bulls as a cost rather than an investment. The data actually show the exact opposite. In fact, a higher-priced bull doesn’t have to have that big of an impact to justify the expense. That’s even more the case at these higher price levels.
Unfortunately, I tried a similar analysis comparing $25,000 horses to $5,000 geldings. For some reason, I’m still getting about a $20,000 difference. With this spreadsheet and sound data, I’m sure I can get the okay to spend $20,000 on a bull, but I’m still looking for that analysis that will convince my wife to give the okay on the horse.
My first attempt was paying for a kitchen remodel that I know I will never recoup but justifying it as a quality-of-life issue. She didn’t buy it; I know the logic is good, so the problem must be in my salesmanship.