While the price for replacement females may be high, it could prove to be economically viable. It all depends on your individual costs and circumstances.
Key to deciding a purchase price that best fits your own operation is first determining your cost of production. This helps you estimate the economic value of replacements in your operation.
“A price for replacement heifers of $2,800 a head may be a good investment for one producer, but a bad one for another,” says Glynn Tonsor, Kansas State University (KSU) agricultural economist.
If one producer’s annual cost of production is $200 a cow less than another producer’s cost, the annual savings to the lower-cost producer spread across the productive lifetime of the female supports an increased but equitable purchase price paid by the low-cost producer.
An online tool created by Tonsor is one of several programs designed to help you determine a price for heifers or cows that’s realistic for your individual operation. The KSU tool (agmanager.info/Tools/default.asp#LIVESTOCK) lets you plug in per-cow cost of production along with an expected annual rate of return on the investment of purchasing replacements.
If you don’t know your costs, the program uses a default setting of a $700-per-cow cost of production. If you’re uncertain about the rate of return you expect, the program will use its default rate of 7.5%.
You can also plug in the number of calves produced by a female based on an estimate of the animal’s expected longevity in your operation. The program also lets you input calf weights at marketing. The program’s price estimates for calves are drawn from USDA’s projections for the next 10 years.
“Built into the program is a 97% success rate with calves and a 15% culling rate of cows,” says Tonsor. “You can input any number and, thus, change input assumptions.”
The program is useful for lenders evaluating producers’ loan applications for purchasing replacements. The tool lets lenders evaluate each applicant’s level of risk when buying high-priced females.
A lender’s confidence in a prospective loan is heightened if the decision-making tool suggests that a producer’s low cost of production may result in a good rate of return despite a high price paid for replacements. A sound rate of return suggests predictability in the producer’s ability to repay the loan.
“Before buying replacement females, consider whether or not the cattle are suited to your conditions,” says Tonsor. “When heifers and cows are in tight supply – as they are now – it’s possible you will not be able to find cattle that are adapted to your environment. In that case, it could be better to raise your own replacements.”
Before deciding whether to buy or raise replacements, take stock of your overall strengths and weaknesses.
“Assess the quality of your cattle and your own ability to raise and develop heifers into replacements,” he notes. “Do your homework before you pull the trigger by writing a check for a set of cows or heifers.”
Iowa State University also offers an online tool for calculating break-even costs relating to buying vs. raising replacement heifers.
noatz.com
Key to deciding a purchase price that best fits your own operation is first determining your cost of production. This helps you estimate the economic value of replacements in your operation.
“A price for replacement heifers of $2,800 a head may be a good investment for one producer, but a bad one for another,” says Glynn Tonsor, Kansas State University (KSU) agricultural economist.
If one producer’s annual cost of production is $200 a cow less than another producer’s cost, the annual savings to the lower-cost producer spread across the productive lifetime of the female supports an increased but equitable purchase price paid by the low-cost producer.
An online tool created by Tonsor is one of several programs designed to help you determine a price for heifers or cows that’s realistic for your individual operation. The KSU tool (agmanager.info/Tools/default.asp#LIVESTOCK) lets you plug in per-cow cost of production along with an expected annual rate of return on the investment of purchasing replacements.
If you don’t know your costs, the program uses a default setting of a $700-per-cow cost of production. If you’re uncertain about the rate of return you expect, the program will use its default rate of 7.5%.
You can also plug in the number of calves produced by a female based on an estimate of the animal’s expected longevity in your operation. The program also lets you input calf weights at marketing. The program’s price estimates for calves are drawn from USDA’s projections for the next 10 years.
“Built into the program is a 97% success rate with calves and a 15% culling rate of cows,” says Tonsor. “You can input any number and, thus, change input assumptions.”
The program is useful for lenders evaluating producers’ loan applications for purchasing replacements. The tool lets lenders evaluate each applicant’s level of risk when buying high-priced females.
A lender’s confidence in a prospective loan is heightened if the decision-making tool suggests that a producer’s low cost of production may result in a good rate of return despite a high price paid for replacements. A sound rate of return suggests predictability in the producer’s ability to repay the loan.
Adapability
One economic variable not easily measured by a mathematical equation is the value of genetic adaptability to your environment.“Before buying replacement females, consider whether or not the cattle are suited to your conditions,” says Tonsor. “When heifers and cows are in tight supply – as they are now – it’s possible you will not be able to find cattle that are adapted to your environment. In that case, it could be better to raise your own replacements.”
Before deciding whether to buy or raise replacements, take stock of your overall strengths and weaknesses.
“Assess the quality of your cattle and your own ability to raise and develop heifers into replacements,” he notes. “Do your homework before you pull the trigger by writing a check for a set of cows or heifers.”
Iowa State University also offers an online tool for calculating break-even costs relating to buying vs. raising replacement heifers.
noatz.com
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