What Is the Value of 1 Healthy Beef Cow

Last month, I suggested that a fall 2004 preg-checked bred heifer that will produce vii consecutive calves has a calculated economic value of $1,560. A rancher paying $1,560 for that bred heifer this fall should wait to earn a 6% return on his investment.

The same economic analysis can be applied to bred cows of all ages. For example, a fall 2004 bred cow that produces six consecutive calves has an economic value of $1,489. Her economic value with five consecutive calves is $1,398; iv consecutive calves it is $1,290; three consecutive calves is $i,159; and ii consecutive calves is $1,049. Each economic value is calculated utilizing each female person's lifetime annual net income values plus her cull cow income discounted dorsum to today's dollars.

And then what'southward a bred female worth today? I distinguish between the sale barn value of bred female and the economic value of a bred female in a rancher'southward herd.

The sale barn value is what a bred female would bring at the local auction barn where the driving gene is the gross value of today'south feeder calves. As gross value goes upwards, the sale befouled value of a bred female person goes up. At present that feeder dogie prices are quite loftier, the auction barn price of bred females is rising.

The economic value of a bred female, meanwhile, is the sum of futurity almanac net incomes generated by all the calves she produces, plus her salvage value as a cull cow. These future incomes must exist discounted back to today's dollars. Note this is cyberspace income, not gross income every bit I oft hear ranchers use.

I suggest ranchers bring females into their herds when the economic value exceeds the auction barn price. The higher the economic value relative to the sale barn toll, the more profit potential.

The beefiness cattle cycle, its resulting beef cost cycle, and ranch resources costs are three key factors affecting the economical value of a bred female person — regardless of her age. Finally, the economic value of bred females is ranch specific.

The bike's "owning" phase

As is typical during the turn-around phase of the cattle cycle, I am currently receiving a lot of calls from folks who desire to buy beef cows. Increasingly, more of these calls are from potential showtime-time moo-cow owners. It seems everyone wants to own beef cows when calf prices become high in the cattle wheel.

I believe the last two years of loftier calf prices have at present triggered the current cattle bicycle's "everyone wants to own beef cows" phase. By 2005, that stage volition change to "I take got to own some of these assisting beef cows!" More often than not, this phase abruptly ends when calf prices break downwardly.

I project calf prices volition stay strong for the next ii, and perhaps three, calf crops. Calf prices will become south toward the end of the decade. Purchased females need to be paid for before calf prices turn south.

At present that calf prices have increased is non the best time in the cycle to buy beef cows. The all-time fourth dimension to buy cows is when no one wants them — like a couple of years ago.

Anyone intending to buy cows over the next 2 years should purchase them now, and the sooner, the ameliorate. Buy them now so newly purchased cows take more high-priced calf years to pay for themselves. I fully expect bred cow prices to get stronger until current dogie prices turn sharply downwardly — like dogie prices did in 1994. Bred cow prices peaked in the last cattle cycle in 1993.

5 calculation steps

Here are my five steps for calculating the economic value of bred females:

1. Set up a set up of long-run planning prices. Beef cow producers detect the development of a set up of long-run planning prices i of the about difficult and complex tasks of the planning process. Start with planning prices and modify them to fit your economical projections.
2. Prepare an economic budget for your herd. I used the 5-year (1999-2003) average enterprise accounts for 769 Northern Plains beef cow herds as my base year. These enterprise accounts are posted by the University Of Minnesota.
3. Utilizing your long-run planning prices, annual enterprise budget projections must be prepared for each of the 7-ix years a heifer might be in your cow herd. I utilized each year'south long-run planning cost and constant five-year average production costs for my projections.
4. Project the save value of cull cows. Utilize the University of Missouri's FAPRI Baseline Briefing Book as your source of long-run cull cow planning prices.
5. Decide the appropriate discount rate. This should be your after-revenue enhancement interest rate for borrowed coin. I apply a half dozen% discount rate.
6. Calculate the net present value (NPV) of a bred heifer. The bottom line presents the calculated NPV of bred females under unlike numbers of lifetime calves produced.

Harlan Hughes is a North Dakota State University professor emeritus. He lives in Laramie, WY. Reach him at 701/238-9607 or [email protected].

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