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Replacement Heifer Decisions

Replacement Heifer Decisions Source: Ross Pruitt, LSU AgCenter
Initial estimates for 2012 U.S. calf crop are 34.5 million calves as contained in the Cattle inventory report released by USDA NASS in late July. This represents a decline of about 800,000 fewer calves from the previous year and continues a long term trend of declining calf crops that stretches back to 1995. Factors including the droughts of 2011 and 2012, culling of dairy cows due to lack of profitability, and a beef herd that is trying to expand will contribute to U.S. calf crops that will likely not significantly above current calf crop levels for the next few years.
Through July, Federally Inspected (FI) heifer slaughter is 5.5% lower than a year ago. In spite of the lower slaughter rate, the number of heifers on feed in July was marginally higher than a year ago and 2.5% higher than the five year average. Expansion in the beef herd will result in larger declines in the number of heifers slaughtered as well as the number on feed in the near future (that is when pasture conditions permit).
The decision on whether to sell heifers now as weaned calves or retain them as replacements will vary by operation depending on availability of resources including pasture, management, and time. Costs to retain and develop heifers also vary by operation due to differences in resource availability. The decision on selling now versus keeping them should consider the total cost to develop the heifer into a mature and productive cow relative to the market price of a replacement female. That decision making process should also consider that selling the heifer as a calf results in one year’s worth of revenue compared to keeping that heifer as a replacement which will generate multiple year’s worth of returns through calf sales plus the final market value when sold as a cull cow.
As an example, heifers weighing 600 pounds were worth approximately $725/head in August. That revenue would only be captured once. However, keeping that heifer could result in calf revenues of at least $600/head for the next five years plus an additional $750 in revenue in the fifth year when the female is culled. Assuming net revenues from calf sales of $150/year, the cull revenue in year five, and an interest rate of 5%, the discounted stream of net revenues from retaining the heifer you could sell today for $725/head would be worth approximately $1237 in future revenues. If your operation’s total costs to get the heifer from birth to weaning and weaning to first calving are less than $1237 (or your expected discounted revenue streams), then keeping the heifer as a replacement is a sound economic investment.
To accurately make the sell or retain decision described in the above analysis requires that you know your costs of production from birth to weaning and weaning until first calf. Sale prices of weaned heifers ($725/head from above) can serve as a proxy for costs incurred until weaning, but given the tight supplies of cattle in the U.S., this will likely overstate your true costs of production. Heifer development budgets available from the LSU AgCenter and other state Extension services suggest producers developing their own heifers will spend a minimum of $600 from weaning until first calf. Recent bred heifer sales at the Oklahoma City Stockyards were $1250/head suggesting that if your operation can develop its own heifers for less than $1250/head, it would be advisable to develop over purchase. The $1250/head price observed in July is down from $1317/head in February for 800 to 1000 pound heifers. Replacement females will not get significantly cheaper in the next few years as producers try to find females to cash in on stronger calf prices over the next 2 to 3 years. This discussion does ignore the genetic potential of females purchased or retained. Higher genetic potential does cost more, but that is partly a reflection of that those replacements should deliver calves that weigh more at weaning (higher per head revenues) and/or will be more efficient in utilizing resources will result in lower per head costs.
For more thoughts on replacement heifer decisions, Dr. John Michael Riley of Mississippi State discussed this topic in a recent webinar. This webinar and other that are a part of the Learn@Lunch Beef Cattle Economics series coordinated by the Cooperative Extension Services of Mississippi State University and the LSU AgCenter are available at:http://www.lsuagcenter.com/en/crops_livestock/livestock/beef_cattle/marketing_economics_business/LearnLunch-Webinars.htm.