Opinion by Trey PattersonWritten by Trey Patterson
By Trey Patterson, COO, Padlock Ranch Company
If you were building a factory to produce a product, you would want the factory to have quality and efficiency built in, but you would also be very aware of the cost to build that factory. Why? If your investment in infrastructure is too high, it will reduce your profitability, or at least extend the period of time after you build before you see profits.
What if you had to rebuild that factory every six years? In many beef cattle operations, the replacement rate is around 15 percent, meaning you will turn your entire herd over in six to seven years. This brings up two very important questions for beef producers to consider:
What does it cost you to put a replacement female in the herd?
At what age do these females fall out of production?
This discussion is especially relevant at a time when we believe herd expansion is on the horizon. The opportunity looks good for the cow-calf producer in the near future, but long-term profitability may be highly related to how good of a job we do at controlling costs while rebuilding.
First, you must consider whether you should raise or purchase females. Next, you need track your costs of replacement females over time relative to prices received on cattle. If your cost of development is rising at a faster rate than the value of cattle you sell, you are heading for decreased profitability. Knowing your cost, then, is obviously very important.
In our operation, we prefer to look at actual costs of developing a female. We start with the average cost to produce a calf at weaning, and then track costs post-weaning until she is determined to be a bred heifer. A bred heifer is then capitalized and depreciated over a five-year period of time to a salvage value. When she is sold, the salvage value comes back into the income statement to offset the price received for the open/cull cow. We always have the ability to look at the opportunity of selling a heifer calf and purchasing a replacement; we then can compare the cost of raising versus purchasing the females we need.
For those who are raising heifers, you do have some control over the costs of production. Work that Rick Funston and his colleagues have done at the University of Nebraska show that crossbred heifers can be developed to lighter weights at breeding (around 50 percent of mature weight compared to standard 65 percent) without negatively affecting reproduction.
At the Padlock Ranch, we have been developing some of our heifers on native range (with modest supplementation) and some in a feedlot scenario. We breed later in the summer, so spring and early summer offer an opportunity for cattle grown on native range during the winter to increase their plane of nutrition and compensate for some of the weight difference between them and their feedlot-developed counterparts. We had one year (harsher winter and dry summer) where the first service conception rate to AI was about 10 percentage units lower for the range-developed heifers versus the feedlot-developed heifers (heifers about 100 pounds lighter at breeding if developed on range). There was no difference in overall pregnancy rate, and the cost per bred heifer was lower for the range-developed heifers. In other years we have seen no difference in first-service conception rate. It really comes down to the cost to get the animal bred relative to the market for the opens.
Nebraska economist Dick Clark did the economics on that issue using some of the University of Nebraska’s work on lower input heifer development. Feed costs and cattle prices were estimated over an 11-year period using actual data. Since there was no difference in reproduction between cattle developed to lower percent of mature weight at breeding compared to those developed to a higher level, it was not surprising that those heifers given less inputs cost about $25 per head less than those with higher inputs (the difference would be greater in today’s market scenario).
The question is, however, what if reproduction were lower in my system if I cut back on the inputs to replacement heifers? Clark addressed this by a sensitivity analysis, where the outcome of a 50 percent pregnancy rate was modeled. What he found was that over the series of prices and costs analyzed, a lower pregnancy rate resulted in a cheaper cost per bred heifer in the lower input system. In other words, it was a paying proposition to sell open heifers on average if the costs of development were low. In a high cost system, lower reproduction resulted in higher costs to develop a bred heifer. This is an important relationship to understand, especially since there is a certain degree of infertility in first calf heifers.
The next step of the analyses was to look at the cost to second pregnancy. On average, it went down compared to the cost of development to the first pregnancy. This was affected by production costs, value of the first calf and the value of open two-year-olds (another important relationship to understand). The important point was that if two-year-old pregnancy went down, then the cost of development to the second pregnancy went up. What this means is that perhaps more of our management attention should be on the two- and three-year-old cow, rather than on the replacement heifer.
You should not get the idea that reproduction in yearlings is not important. If your cost of development is high, it is important. If your costs of development is low enough that the opens are profitable, like a stocker yearling, then you may have more leverage on profitability by spending money to keep your bred cows bred than on building the replacement.
Using the previous analogy, maybe you should consider spending less on building the factory, but reinvest some of that savings in keeping the factory running efficiently.