Replacement females heavily influence a beef cow herd's profitability. Some operators raise replacements from scratch, others buy them, but the key to increased ranch profits is to introduce replacement females into the herd when the lifetime economic value (LEV) exceeds the salebarn price of (or cost of raising) that same heifer.
The LEV of a preg-checked replacement heifer is the sum of all the net income generated by her calves while she's in the herd, including her salvage value. By discounting that net income back to today's dollars, we can compare a replacement heifer's calculated LEV to her salebarn price. Remember, a replacement heifer's LEV changes with the cattle cycle and its resulting beef price cycle, as does her salebarn price (see “Five critical points,” p. 11).
My calculated LEV of replacement heifers is based on USDA's Long-Run (2005-2016) Baseline Prices. Using USDA's long-run prices for 400- to 500-lb. calves, I've calculated a set of suggested planning prices for 500- to 600-lb. steer calves (Table 1). Table 2 presents the long-run cull cow prices used in this heifer analysis.
Calculated economic value
A replacement heifer's economic value is calculated from her projected annual net cash flow in a specific herd. I generally use a herd's calculated net cash flow before family-living draw. I also assume the typical straightbred heifer will have seven consecutive calves in her lifetime.
In this analysis, I used the net cash flow projections from USDA's Baseline Prices (Table 1); my calculations are presented in Table 3. USDA's annual net cash flow projections (Table 3, column 1) were then adjusted for the age of dam (Table 3, column 2). Cow-age adjustments depict what I consider typical for a Northern Plains herd. Note that four-, five- and six-year-old females are the most profitable, and that a 1,200-lb. cull cow was sold in the seventh year for $492.
Column 3 presents the adjusted annual net cash incomes.
A discount table for a 7% discount rate was used to generate column 4 numbers. The annual discounted values (column 5) were calculated by multiplying the annual net incomes (column 3) by the annual discount factors (column 4).
The projected total cash income from the projected lifetime calves from this heifer comes to $1,630. Adjusted for the time value of money (7%), it's discounted to $1,160. Thus, the LEV of a fall 2006 preg-checked heifer is projected at $1,160.
Thus, if this heifer is purchased for $1,160, this rancher is projected to make a 7% return on his investment. If he buys this heifer for less than $1,160, he'll earn more than a 7% return; if he pays more than $1,160, he'll earn less than 7%.
But not all heifers have seven calves; some are culled early. Table 4 presents my calculated LEV adjusted for a heifer with 1-7 lifetime calves — columns 4-10. Columns 11 and 12 are for crossbred females, which tend to have a longer productive life.
The calculated LEV of a 2006 preg-checked heifer that has one calf and is then sold is $679 (column 4). Meanwhile, a heifer producing four calves before being culled has a calculated LEV of $858 (column 7). Again, you can see a heifer that produces seven consecutive calves has a projected LEV of $1,160.
Column 13 depicts a situation where a heifer has one calf, is open the next year, and follows with five consecutive calves. Her projected LEV of $829 justifies the adage of selling all open females.
Less than seven calves
Let's assume this rancher purchased 100 preg-checked replacement heifers in fall 2006, and his “save rates” after culling each year are presented in Table 5. (A save rate is the opposite of the culling rate.) The save rate starts out lower for younger females, peaks in midlife and remains high in this herd through the seventh calf. The “remaining number” row illustrates the number of these replacement females that calved each respective year.
The “market value” row represents the LEV of cows culled at each age. Ten of the 100 females had one calf before being culled, generating a projected LEV of $6,787, or $679/culled female. But 72 replacements produced seven consecutive calves, generating a projected LEV of $83,548, or $1,160/head.
Many Mountain States and Nebraska Sandhills ranchers I've worked with had average herd save rates of 88-90%/year — an annual cull rate of 10-12%. The lower the save rate, the lower the lifetime value of replacement heifers, and vice versa.
The total projected LEV for these 100 preg-checked females is $103,094, or $1,031/preg-checked heifer. If these heifers can be purchased for $1,031, this rancher is projected to earn a 7% return on his heifer investment.
While not shown in the table, the breakeven LEV of a replacement heifer is projected at $1,400. At that price, a zero return is projected on the investment.
The decision to raise or purchase a replacement heifer is a genetic or health question, not an economic one.
My analyses suggest the economics of raising or buying replacement heifers is about the same. When the true economic cost of raising a replacement heifer from scratch is compiled, it costs about as much to raise a preg-checked replacement heifer as purchasing one.
Harlan Hughes is a North Dakota State University professor emeritus. He lives in Laramie, WY. Reach him at 701-238-9607 or [email protected]
Five critical points
Five critical points to consider regarding a replacement heifer's lifetime economic value (LEV):
The economic value of a heifer is “herd-specific” and based on the net incomes in your herd. In low-cost operations, heifers are worth more in the herd. In high-cost operations, heifers are worth less.
You typically can't pay for a bred heifer from just her calf production — her salvage value must be considered. The net income from around five calves, plus her salvage value, typically is required to pay for a replacement heifer.
A replacement heifer's LEV isn't highly correlated to today's calf prices; it's based on future calf prices. Meanwhile, salebarn price is highly correlated to today's calf prices. A replacement heifer's economic value is almost always quite different from her salebarn price.
To maximize cow-herd profits, replacement heifers must enter the herd during that phase of the cattle cycle that will maximize the difference between her salebarn price and her economic value in your herd. Profit is made when a heifer's economic value exceeds her salebarn price. Profit is lost when her salebarn price exceeds her economic value.
Over the past 24 months, the high cost of replacement heifers has driven the salebarn price to exceed the calculated LEV of replacement heifers, and I've discouraged ranchers from buying replacement heifers during that period. I also doubt the average rancher can make a profit by developing their 2006 heifer calves into bred replacements and calving them out.