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Weighing The Economics Of A $1,400 Replacement Heifer

With some signs of improvement in the beef market, many producers are wondering if it is time to expand the cow herd. An Alberta Agriculture specialist says there are a few points to consider as ranchers decide whether to keep or buy replacement heifers.

“This past fall, bred heifers were selling in the $1,100 to $1,350 range with some reports at $1,450. When your heifer comes off pasture next fall and comparable animals are selling for $1,350 to $1,450, you need to know whether or not you should keep her or take your profit,” says Ted Nibourg, farm management specialist with Alberta Agriculture and Rural Development.

The Canadian cow herd has declined about 20 per cent since its peak in 2005; however, last fall’s calf prices were the strongest since 2000-01. After seven years of depressed returns in the cow-calf sector, optimism seems to have returned. This has resulted in some producers pondering the question of whether to retain heifers or not, while others are trying to decide if they should buy replacements.

BASIC QUESTIONS

“Some basic questions have to be answered before moving on to the heifer issue,” says Nibourg. “Producers should consider if their infrastructure is sufficient to handle a larger cow herd. Infrastructure includes corrals, feeding equipment and land base. Also, a producer’s age needs to be considered — are they young enough to weather another cattle cycle?”

Other questions include, is there enough labour on the farm to handle the extra workload that an expanded herd would demand? What is the prediction for calf prices in the long run?

“Assuming these basic questions have been answered positively, you need to decide if you will grow your own or purchase replacement heifers,” says Nibourg. “The cost of raising replacements must be considered, and the costs taking them to next fall. The factors that must be calculated include the value of the weaned calf or opportunity cost, the daily cost of gain, yardage cost, pasture cost, the cost of the bull for cover, and miscellaneous costs for vet, meds and trucking. Opportunity cost is revenue you forego by choosing one thing over another, in this case keeping the heifer rather than selling her.”

Alberta Agriculture and Rural Development has an online calculator that can help producers run those numbers. It can be found at www.rtw.ca/420.

Another thing to consider is what kind of calf prices will be needed for the next six years to justify keeping her or buying some extra $1,400 heifers, which can seem like a complex calculation.

PENCIL IT OUT

“For example, using a six-year period, a five per cent discount rate, calf weights of 550 lbs., a $700 cull cow value and using the defaults for variable and fixed costs we arrive at a calf price of $1.25/lb. to justify a heifer worth a little over $1,100,” says Nibourg. “To justify a heifer worth $1,400, calf prices need to average $1.35/ lb. for the next six years. These calf prices are a blended price between heifers and steers and take into consideration an 85 per cent weaning rate. To achieve a blended price of $1.25/lb. with an 85 per cent weaning rate, five to six weight steers will have to average $1.53, and same weight heifers will need to average $1.33/ lb. At a blended price of $1.35/ lb. steers in that weight category would have to hit $1.68/lb. and heifers would need $1.48/lb. on average.”

This example uses some average figures to illustrate the concept. As mentioned, each producer has to ranch for themselves, so use your own numbers to come up with a price you can afford to pay for replacement heifers.

FormoreinformationcontactTedNibourg

byemailat: [email protected] orcall

403-310-3276

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