My columns of the past few months have focused specifically on the long-run economics of the beef-cow sector, particularly the role of replacement females in the overall economics of a beef cowherd. I believe the overall cost structure of a beef cowherd is heavily influenced by the cost of replacement females going back into the herd.
I contend that the economic value of a bred heifer is the sum of her annual “net incomes” generated while she remains in the herd, in addition to her cull-cow value.
These factors must be represented in today's dollars; in other words, the time value of money has to be an integral part of this analysis.
With that as a background, I will focus this month's column on a reader's question regarding the economics of two criteria he focuses on in selecting replacement females.
This rancher inquired if I had any numbers he could use in developing an economic value for genetically selecting for added longevity in his raised replacement females vs. selecting for adding weaning weight. While I have no actual economic data addressing these two traits, we agreed that longevity is the more important economic trait. But is our hypothesis correct?
I have developed a computer model that evaluates the long-run economic value of straightbred replacement heifers vs. crossbreds. I have incorporated increased weaning weight and increased longevity, both attributed to cross breeding; together, they make a significant positive economic difference compared to straightbred replacement heifers.
Since talking to that rancher, I've conducted an economic analysis specifically focused on the economic value of longevity vs. added weaning weight. My primary goal is to stimulate discussion about this overall subject.
In response to this rancher's question, I decided to run my Heifer Economic Value Model under several different net-income, longevity and cull-cow price scenarios. I then used these simulation results to calculate a statistical regression equation that assigns a relative economic value to longevity, net income and cull-cow value.
Rather than focus directly on weaning weight, I approached the weaning-weight measure through a net-income number so that I could take the market-price slide into account. I did assume, however, that the added weaning weight came from genetics and didn't result in increased production costs.
My preliminary analysis suggests that a 1-lb. increase in average annual weaning weight above the original 550 lbs. would increase the economic value of a bred heifer by $5.13/lb. of added average weaning weight. This suggests that a 25-lb. increase in average weaning weight over the lifetime of the bred heifer would add $145 to the economic value of the bred heifer based on mid-January 2010 feeder-cattle price slides.
My preliminary analysis also suggests that increasing longevity by one additional lifetime calf would add $20.36 to the economic value of a bred heifer. Adding two years would add $40.72. (One must remember that these calf crops are eight and nine years into the future and these respective future net incomes are discounted back to today's dollars.)
Given this, I would have to question my earlier hypothesis that longevity is a more important economic factor than weaning weight.
Is a 25-lb. increase in weaning weight and a two-year increase in longevity possible? A 25-lb. increase in weaning weight is a 4.5% increase, while a one-year increase in longevity is a 28.5% increase. In an earlier review of literature on crossbreeding, I concluded that one could expect a 6% increase in pounds weaned and a two-year increase in longevity from crossbreeding. So, perhaps my 25 lbs. of added weaning weight and two years of added longevity are reasonable. What I like about crossbreeding is that it increases both simultaneously.
Finally, my analysis suggests that 51% of the cull value is added to the economic value of a bred heifer. Remember, the cull value for straightbred heifers was generated seven years into the future and its value has to be discounted back to today's dollars.
One point that became clear in this study was that in today's low-profit margins from beef cows, cull-cow income is even more critical to the economic value of a bred heifer than when net income per cow is greater. The take-home message is that how you market your cull cows is even more critical today than it has been in past years.
I present this data to start a discussion on the relative economic importance of longevity vs. production. Better yet, perhaps this is a format that some enterprising agricultural economics graduate student can research for a thesis.
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.