Industry experts encourage cattle producers to expand, consider all options to accomplish goalsWritten by Gayle Smith
Here’s that six-letter word we’ve been hearing over and over again – expand. With cattle prices skyrocketing to levels ranchers only dreamed of and beef herd numbers at record lows, economists are urging producers toward expansion.
While it seems logical that to stay in the cattle business ranchers need to keep their factory running, most are wondering at what cost. As most producers move into calving season, and more bred cattle are filing through the sale barn or production sales, University of Nebraska Educator Robert Tigner has seen commercial bred heifers range anywhere from $2,300 to $4,900.
John Ritten, an assistant professor at the College of Agriculture and Natural Resources at the University of Wyoming, says in 2013, bred heifers averaged $2,100. This year, they are worth more than $3,000.
Because of the cost, Tigner says producers need to make decisions based on facts or the best information available to them.
“Choices should be made that align with business and personal goals, and the decision-maker needs to understand the amount of risk his or her choices will create and the amount of risk the business can withstand,” he explains.
Ranchers know that, to stay in the cattle business, costs must be less than revenues, but with the cost of purchasing or developing a replacement heifer, costs may exceed revenue in the short term.
“It becomes a question of cash flow,” Tigner says. “Producers may have to do some careful planning using credit or reserved resources if they want to expand.”
In nine of the last 10 years, the economists say it costs more to develop a heifer than the added value. Some producers prefer to develop their own heifers to retain and improve their own genetics rather than purchase replacements.
“In theory, that should make them worth more than the marketplace,” according to Ritten.
The drought that impacted much of the U.S. has also changed the demographics of the cattle industry.
“One of the questions I have is whether some of those areas hit the hardest by drought will rebuild,” Ritten says. “Global demand is also one of the biggest risks for producers who are thinking of expanding. There is also the unforeseen.”
“Right now we have cheap corn and stock on hand, but how many years will that last?” Ritten continued. “Farming and crop production are unpredictable. Then, there are the weather impacts and grass prices. It makes us wonder how long these prices will hold.”
“It’s a great time to be in the cattle business, but it’s a scary time to be in the cattle business,” the Wyoming economist states. “Next July, economists are already predicting an open heifer in Wyoming to be worth $1,920. Ranchers are already undertaking some risk just by not selling her at weaning.”
Cost of production
Producers need to have a good handle on their own production costs and how those impact their bottom line, Tigner says.
Other factors like capital gains, available extra grass and desire to restock their herd are also factors they should consider, Ritten adds.
Ritten led ranchers through an example of costs to consider in developing a bred heifer. He begins by assuming ranchers are weaning or purchasing the heifer calf on Oct. 15 and grazing her on grass for six to seven weeks. On Dec. 1, he could either place her in a drylot or pasture feed her hay and protein.
“Feed costs, even using cheap hay, are not cheap,” Ritten says.
He also accounted for 45 days of grass at $25 per animal unit month (AUM) for a 550-pound heifer. Then, from Dec. 1, 15 pounds of hay per day, plus four pounds of cake should also be included. Grass hay is figured at $110 per ton, and $320 per ton for protein until May 1.
From May 1 to July 19, the heifer can be put back on grass or fed hay and protein at four pounds per day.
“I would feed the heifer protein just to make sure she gets bred and stays bred. Based on this scenario, it would cost $350 to $360 in feed costs to get this heifer from a weaned calf to an exposed heifer,” Ritten says.
In addition, ranchers need to determine whether to artificially inseminate (AI) the heifer or use natural service.
With AI conception at 65 percent and natural service at 90 percent, there will be some heifers open. Producers will need to charge a per-head cost to breed the heifers if they are using natural service, because the bull will have too big a frame to be usable after two years, Ritten says.
Figuring a $4,000 bull and a salvage value of $1,800 at the end of two years, it would cost $72 per heifer if 25 heifers are bred each year.
AI costs average about $80 a heifer, figuring the per head cost of semen, shots, technician charges and other fees.
Other charges to add are veterinary costs, interest, labor, weaned heifer cost and cost of opens.
The bottom line, Ritten says, is a cost of at least $2,000 to develop the heifer from weaning to bred heifer, with most of the cost being the price or value of the heifer calf.
If heifers are purchased, Tigner says producers should try to purchase them early in the beef price cycle, regardless of cycle shape.
“The timing of the purchase of a heifer has a lot of impact on whether or not she will be profitable in the long-run,” he explains.