One of the biggest decisions you can make that affects your bottom line for the cow-calf herd is deciding what you can pay for replacement heifers. If you pay too much, you are setting yourself up for a situation where those heifers cannot possibly pay for themselves over time.
At a recent University of Nebraska BeefWatch webinar, Randy Saner, Nebraska Extension educator, told participants that longevity or replacement rates within the herd are crucial in deciding what you can afford to pay — and if a heifer made money for the operation, or cost money.
There are four basic factors that affect the price a producer can afford to pay for replacements.
1. Longevity. This simply means a replacement heifer’s ability to stay in the herd as a productive unit. “If we have to sell her early on, she costs us money,” Saner said, “because she didn’t raise enough calves to pay for herself.” For instance, a 12-year-old cow that has a healthy calf every year could easily bring $3,000 into the herd.
2. Costs vs. value. This factor takes into account both current and future expected differences between costs and revenue. “If you pay a lot for the heifer, and the calf prices are very low and costs are high over her productive life, this impacts how much the cow eventually brings into the herd,” Saner said.
3. Genetic and phenotypical compatibility. This factor asks if the heifer is genetically compatible with the rest of the cow herd and fits into the genotype of the herd.
4. Operator goals and management style. Producer goals and resources are different for every unique geographic region. In some regions, corn is often available to feed to cows, but in others, that may not be the case. No matter where the operation is located, the heifers purchased or retained must fit with the goals and resources available to the operation.
Low-cost and low-replacement rates
Saner said that, ultimately, low-cost, low-replacement-rate herds can afford higher-valued replacement heifers, and they can replace capital faster in those operations. “Find something to match your forage base, feed resources and goals with your operation,” Saner said.
In 10 years of economics studies at the University of Nebraska-Lincoln Gudmundsen Sandhills Laboratory near Whitman, researchers looked at three different replacement rates of 14% on the low end, 20% as average, and 28% as a high replacement rate.
They also studied three different cost of production ranges, with $716.16 as a low cost of production, $780.50 as an average, and $831.20 as the high end of cost of production. These numbers will vary according to operation. The information from the studies helped develop a database that is used to predict heifer breakeven prices.
Saner said the study and computer database found that producers operating within the lower replacement rate and lowest cost of production could afford to pay up for replacement heifers and still bring money into the operation. But those operating in the high-replacement-rate range and the highest cost of production can’t pay as much for their replacements without losing money.
This specific study looked at cash purchases only, without producers having to borrow money to purchase replacements. If they use borrowed money, profitability of those replacement purchases might hinge on interest rates. “Even if a producer raises their own replacements, they are still paying for those,” Saner said.
“A heifer’s productive life can span a decade, and cattle prices vary greatly during a decade,” Saner added. “To be economically successful, producers need to buy or raise replacement heifers for no more than what is needed in net returns over their lifetime. Settle in on a baseline price of what you want to pay and stick to it.”
Learn more by contacting Saner at 308-532-2683, or email [email protected].