Developing your own heifers vs. purchasing bred heifers
In June, the Economic and Policy Update included an article by Michael Forsythe discussing the tax implications of raised breeding stock versus purchased breeding stock. We felt it would be worthwhile to follow up that article with a discussion of some other considerations when making that decision. Ultimately, the practice that makes the most sense will vary from operation to operation, but framing the decision from an economic perspective can be useful as cow-calf operators decide how best to replace their cows.
Many producers look at the prices of bred heifers in replacement sales and immediately decide that they can do it cheaper themselves. In many cases, this may be true, but producers really should sit down, push the pencil, and make certain that this is the case. Further, there are many non-economic considerations that affect this decision, including biosecurity, known quality and temperament, resource base, etc. However, it is still likely that many producers underestimate the cost of developing their own heifers, and this article is intended to discuss some of these costs.
When cow-calf operators develop their own heifers, the first cost of doing so is the value of the heifer had she been sold at weaning. This fall, 5-weight heifer calves are likely to be bringing more than $650. By choosing to keep her, this income is given up. While this is not a “cash cost,” it is an opportunity cost. Had that heifer been sold, that money could have been put toward the purchase of a bred heifer.
From there, she must be kept for 12 months to be comparable to a bred heifer the following fall. This will likely require some combination of purchased feed and hay during that winter, pasture in the summer, mineral, vet and medical expenses, breeding costs (either A.I. or bull maintenance), overhead, and interest. In some cases, there may be an additional cost to keeping the heifers separate from the bull until they reach breeding age if the common practice is to run bulls year-round. These costs can easily total between $300 and $400 over that 12 month period. But, there are other costs that are more difficult to quantify that should also be considered.
First, cow-calf operators typically hold more heifers than they actually intend to keep so they can choose from them. Sometimes this happens because they fail to breed, sometimes they just don’t grow out as expected, as well as other reasons. Regardless of the whys, a great deal of time and resources are tied up in heifers that never enter the herd and end up being sold through conventional markets. These costs drive up the true costs of the heifers that are retained.
Second, it is important to understand the timing of the two alternatives. If I wean a heifer in the fall of 2012, she should wean her first calf in the fall of 2014. However, if I purchase a bred heifer, she should wean her first calf in the fall of 2013. So, any profit that I could make on that calf in 2013 should really be treated as an additional expense to developing my own heifers as I have to go a full two years before weaning a calf from her.
The third tough-to-quantify expense that we will mention is probably the most difficult. Developing your own heifers likely affects the overall genetics of your herd; this is especially true for small cow-calf operations that are not able to run separate bulls for their first-time calvers. By selecting low-birth-weight bulls for heifers, I may be giving up some weaning weight on calves from my mature cows. Further, I have to select bulls for maternal characteristics in addition to other factors, which results in some trade-off of traits, or more expensive genetics. Another potential solution to this problem would be to use a herd bull for mature cows, while using AI for heifers. But again, for small herds, this likely represents an additional expense.
Again, the intention of this article was not to push the envelope either way in terms of attaining replacement breeding stock. It was simply intended to outline some of the costs associated with developing heifers. Ultimately, cow-calf operators must decide whether they can economically manage a cow-calf enterprise and a heifer development enterprise simultaneously. If the answer is no, then outsourcing this piece of the puzzle is likely a viable option.
This article was written by Kenny Burdine and Michael Forsythe, agriculture economists
in the University of Kentucky College of Agriculture. The article first appeared
in the Aug. 27 edition of Economic and Policy