How Much Can You Pay for a Heifer?
With feeder calves worth over $1,000 a head and finished steers over $2,000, it’s time to expand the cowherd. How much can you justify paying for a bred heifer?
Stan Bevers hears that question all the time. The Texas A&M AgriLife Extension economist at Vernon, Texas, has built a whole speech around the topic, and he’s delivered it several times at producer gatherings.
If you go to cattle sales, you know why the heifer-value question gets asked. They’re sky-high! The Missouri Show-Me-Select Bred Heifer Sales in May 2015 averaged over $2,800 per head for commercial heifers. That was an uptick of about $400 from the 2014 average. Top-end prices for elite individual heifers were near $4,000.
Can anyone justify that much? The answer lies in some fairly simple math, Bevers says. If you know how much income a heifer will generate over her lifetime, then subtract the annual costs to keep her, you’ll get an estimate of the breakeven price you can afford to pay.
Bevers walks beef producers through the math steps with an expected eight-year productive life for the heifer.
Step 1. How much income will she generate?
While that is unknown, you can take a stab at it, Bevers says.
Both the Food and Ag Policy Research Institute (FAPRI) and USDA economists release long-term projections for the feeder cattle market. While their numbers aren’t exactly the same, both show feeder prices peaking in 2015, then doing a slow decline of about $5/cwt/year for the next few years before leveling off in 2021 or 2022. Adjusting them to weaning weights and location, Bevers projects an average price of $265/cwt now for calves, tailing off to about $225 in 2022.
Another assumption you can make is calf weaning weight, he notes. Ideally, you can use your own long-term average weight. For his illustrations, Bevers uses real averages from the Southwest Beef Standardized Performance Analysis (SPA) database: 532-pound steer average.
Half of the weaned calves will be heifers, which weigh less and are worth less at market. Allowing for this projects to a lifetime calf income from the heifer of $10,128.
Step 2. What about productivity?
Bevers says no cowherd gets a 100% calf crop every year. Some cows don’t breed, and not every calf lives. Over the long-term, most producers wean a crop of 82% to 85% of the cows bred. Adding this productivity estimate takes the heifer’s lifetime income back to $8,608.
Add to that the estimated salvage value of the cow at the end of her run: 1,075 pounds at $100/cwt is $1,075. Her total lifetime income is $9,683.
Step 3. What does it cost to keep her?
There’s the annual cost of pasture, hay, purchased feed, equipment, facilities maintenance, labor, seed, depreciation, and more. Using real numbers from the Southwest Beef SPA database, Bevers says it currently takes about $906 per cow per year for all of those costs. (It’s trending up.) Assuming it stays the same for the cow’s eight-year life, that’s $7,248.
Do the final math
Calf income and salvage value ($9,683) minus the cow maintenance cost ($7,248) gives a net present value you can pay for a heifer and expect her to break even over her lifetime. With these estimated numbers, it comes to $2,435.
Bevers says when he does the math with typical real numbers from beef producers, it usually falls in the $2,400 to $2,500 range. If you pay that, he reminds, it just projects that you will break even on the investment over the eight years.
“You can spend more than this for a heifer,” Bevers says. “If you do, it’s because you think one of those three things is different. The calves are going to be worth more than the numbers used; your productivity is going to be better; or your costs are going to be less. One or all of those things may be true in your case.
“Lots of people are looking at this math,” he notes. “It’s good they are looking closely. At these investment levels, prices for calves need to stay high for a while.”