What’s a Heifer Worth?
The talk of every circle that I have traveled in the past three months has been, “What are heifer prices going to do?” That’s the million-dollar question everyone wants to know, and no one has a good answer – including myself.
Data from a recent Cattlefax report suggested that quality spring bred heifers are commanding $2,250 to $2,600 this summer and expect to push $3,000 this fall. It seems mind boggling to think that bred heifers are commanding almost $3,000.
However, reports of 400-pound calves being locked in for fall delivery at around $2.90 to three dollars per pound are surfacing, and cull cows are currently trading very strong.
Therefore, perhaps the high cost of replacement heifers is a good investment after all.
It’s easy to get caught up in the price of calves and cull cows and think its ok to pay a huge premium for heifers. That leads me to the next question, “What is an appropriate price for replacement heifers?”
Here are a few steps to help determine an estimate of what is an appropriate price. One word of caution is that this example uses gross estimates taken across the region. Each individual’s operation may have drastically different expenses and incomes. However, it is the approach – not the prices – that should be considered to determine the appropriate price of replacements.
The first question that should be answered is, what are your annual feed costs?
Generally, annual feed costs can make up 60 to 70 percent of a producer’s expenses.
Regional costs to run a cow are estimated at $700 per cow per year. This includes feed, fuel, repairs, yardage, permits, vaccines, fertilizer, etc.
It is important to include costs that are spread over all your cows.
National Animal Health Monitoring System (NAHMS) data estimates that the average cow has 4.7 calves before she exits the herd. Therefore, the lifetime cost to maintain a cow in your herd is $3,290. This is assuming the heifer was purchased.
Next, you should ask, what is your production potential per cow?
Using the number of 4.7 calves per cows lifetime and using a conservative current market price, realizing it may go up or down in future years, of $2.40 per pound for a 500-pound calf, a cow will generate $1,200 per year and $5,640 over her lifetime.
Salvage value of that cow must also be considered when she does exit the herd. Again, using current cull prices, an average cow is bringing $1,500. Therefore, her total lifetime income is $7,140.
It is important to note that death loss has not been calculated for this example and should be considered when determining total production.
Then, determine a cow’s lifetime net income.
By subtracting annual costs, $3,290, from the total income, $7,140, we arrive a difference of $3,850. This is the value that can be used to purchase a heifer and provide profit for the operation.
It is important to understand that the full amount should not be used to purchase a replacement, as building in profit and other unforeseen expenses is important.
With the expenses and incomes built into this example, the current high price of heifers still offers a good investment value. As stated earlier, it is critical for each operation to arrive at their own numbers to accurately predict income and pricing.
The expenses and incomes given in this example are easily debatable. However, it is the process of subtracting a cow’s lifetime costs from her lifetime income potential that will help determine what the appropriate costs you should place on a replacement heifer.
Scott Lake can be reached at email@example.com.