With all the day to day tasks that need to get done, it is easy to stick to tradition and ignore the fact that what has always been done in the past, may not make “cents” this year. With today’s livestock and crop market prices, given the current economic situation it is time to sharpen the pencil to ensure profits are still there at the end of the day.
Producers often overlook replacement heifer development plans with the implementation of these plans happening soon after weaning. Producers that have not evaluated the cow costs or heifer development costs may not be using the best replacement method for their operation. Just because heifers have been kept in the past, it does not mean they need to be kept every year. Does it make financial sense this year? Do producers actually considered the TRUE cost of raising replacement heifers? Or can value be realized by selling feeder heifers and buying bred heifers later? What factors or opportunity costs need to be accounted for when making this decision? This article will look at the cost of production, with the buying vs. raising replacement heifer debate to follow soon in a future article.
Many heifer development expenses do not require producers to actually write a check, thus are often unaccounted for in the heifer development budget. These fixed expenses include costs that will occur regardless of the number of heifers kept for development (example: feeder wagon, tractor, pickup).
Another common item missing in the budget is cow depreciation. Cow depreciation needs to be accounted for especially when purchase price, salvage value and years of service may differ from year to year. Depreciation also serves as an indicator when evaluating if replacement heifers are to be raised and developed or bought as bred heifers.
Value can also be lost because of not taking into consideration the opportunity cost of production. The heifer calf has a market value at weaning. The bred heifer enterprise should “purchase” the heifer calf at either the market price (sale barn price per pound) or the cow costs incurred to grow the calf from breeding to weaning.
Start by assigning values to records in a budget to determine the cost of production, distinguishing direct from fixed expenses (Table 1).
Other expenses/opportunity costs that might not fall into the above categories but may need a value assigned to them include:
• Value of the heifer calf
• Extra pen/pasture to manage heifers separately from mature cows
•Extra Bulls – maintenance/feed costs and purchase of calving-ease heifer bulls
• Pregnancy Rate: 5 – 10% of replacements will not breed and their expenses need to be accounted for (Replacement charge per cow)
• Cull percentage & resale value of culls
• Death losses
Using a budget will help the total costs of raising replacement heifers. Table 2 gives an example of the cost of production of raising a replacement heifer from 2015 weaning, to fall 2016 pregnancy check. To determine cost of production unique to an operation, download the 2016 Livestock Budgets projection calculator (http://www.sdstate.edu/economics/extension-and-outreach) and input your own feed costs and values.
These are just some of the things a producer needs to consider when creating a replacement heifer development plan. Having a heifer development plan can help producers determine the best use of their resources. This is especially true when there are expectations of lower profit margins as a result of depressed market prices.
Disclaimer: The information in this article is believed to be reliable and correct. However, no guarantee or warranty is provided for its accuracy or completeness. This information is provided exclusively for educational purposes and any action or inaction or decisions made as the result of reading this material is solely the responsibility of readers. The author(s) and South Dakota State University disclaim any responsibility for loss associated with the use of this information.