After a couple months of dealing with drought and heat-related topics, it’s time to look ahead at some of the financial opportunities on the horizon. Cattle producers need to act as business managers and assess their inventories of all resources and commodities on hand to determine the best course of action to maximize their profit potential over the next several years.
Regardless of what you have done in the past, now is the time to prepare for the financial opportunities that lie ahead in the cattle business. This week, we address the upside of heifer retention.
Consider the following.
Drought has resulted in cyclically low cattle inventories. The laws of supply and demand dictate that when cattle inventories are low, the future value of cows, calves, yearlings and feds will increase. Feedlot placement data shows more heifers going on feed as opposed to being retained as replacements. What opportunities does this create? It creates the chance to market bred replacement heifers at premium values in the future.
The most recent USDA Oklahoma Weekly Livestock Auction Summary tells us that 477 pound, medium and large frame, muscle score 1 heifer calves traded at an average of $162.79/cwt. This translates to a total value per head of $777.
If we collect weights on our 4-7-year-old cows at weaning, we can determine the average mature weight of our cow herd.
If we assume:
• These heifers will be 14-15 months old by May 1, 2023, when we are ready to begin our breeding season.
• They need to be at 65% of their mature weight at that time to be cycling and ready to breed.
• Our average mature cow weighs 1,300 lbs.
It permits us to calculate the following:
• 1,300 x 0.65 = 845 lbs., which is the target weight by May 1, 2023.
• 845-477 = 368 lbs. of gain are needed over the next 200 days.
• 368/200 = 1.84 lbs. of average daily gain are needed from now until breeding season.
As we take inventory of our hay, silage, feed grains and potential winter grazing, we need to arrive at a ballpark figure for the cost of gain (COG) on the 368 lbs. needed to reach the target weight. This could be achieved in multiple ways depending on available feed resources.
For this example, assume a cost of gain of 80 cents, $1.05 and $1.30 to make the following calculations:
• At 80 cents COG: 368 x 0.80 = $295. This added to the current value of the heifer at $777 equals $1,072. To account for opportunity cost, financing, additional grazing past breeding season, potential death loss and the cost of breeding naturally or using artificial insemination, raise this value by 10%, resulting in a break-even value of $1,180. Do you believe bred heifers will be worth at least $1,180/head a year from now?
• At $1.05 COG: 368 x 1.05 = $387. This added to the current value of the heifer at $777 equals $1,164. Again, raising that value by 10% to account for the previously stated expenses results in a break-even number of $1,281.
• At $1.30 COG: 368 x 1.30 = $479. This added to the current value of the heifer at $777 equals $1,256. Again, raising that value by 10% results in a break-even value of $1,382.
Manage your business, do the math, take inventory of your resources and consult with a nutritionist. Each of the breakevens calculated above are below the fall values of good-quality, spring-calving bred heifers over the past couple of years. — Mark Z. Johnson, Oklahoma State University Extension beef cattle breeding specialist
