Purchasing versus raising replacement females

By Jack C Whittier, Beef Extension Specialist Colorado State University   |   Updated: December 29, 2011

Purchasing-versus-raising-replacement-females

INTRODUCTION

The recent decline in the national beef cowherd has increased interest in replacement female decisions.  Some large-scale cattle operations have become more specialized in selecting for and propagating maternal traits in the females they produce for internal herd replacement.  Often, additional replacement females are available for purchase from such sources.  Alternatives for replacement females include either raising females from within the herd or purchasing replacement females from an outside source.

CONSIDERATIONS

The decision to buy or raise replacement females can generally be broken into two categories: financial and convenience.  Both short-term (cash flow) and long-term financial decisions must be evaluated.  In addition, convenience considerations may play a role in the decision.  A source of females must be found; the genetic, phenotypic and behavioral characteristics of the females must match the ranch objectives; and the experience must be repeatable with positive results from one year to the next.  The customary approach for female replacement has been to select and develop heifer calves born from the cows in production on the ranch.  However, certain factors have led many managers to re-evaluate their replacement female programs.

1.  The inability to effectively and successfully incorporate the advantages of maternal and terminal heterosis into their production system.

2.  The desire to reduce the number of enterprises they are required to manage, thereby allowing them to focus more attention on other things; including dealing with “nonproduction” pressures such as land and water use, development, and other issues that threaten their ability to survive in the ranching business.

3.  A recognition that the calves they currently produce are not in step with incentives that are driving value determination in today’s beef industry.

4.  Maternal supplier enterprises that make high quality replacement females more accessible and often more affordable than “home-raised” replacement heifers.

FINANCIAL CONSIDERATIONS

Gayle S. Willett and Donald D. Nelson at Washington State University wrote an excellent publication entitled: Analyzing the Economics of Raising versus Buying Beef Replacement Heifers.  I will not duplicate this bulletin in this paper; however, I will refer to the points listed in this bulletin, and the analytical worksheet included in the bulletin.

Willet and Nelson (1992) list the following variables in determining a herd replacement procedure.  It is difficult, if not impossible to generalize about raising or purchasing replacement females since each ranch and ranch manager have different resources and goals.  However, this list of variables will apply in most every decision tree:

  • Interest rates on savings or other alternative uses of capital
  • Interest rates on borrowed capital
  • Cash flow needs
  • Labor availability and costs
  • Relative price difference between cull cows and heifer calves
  • Reproductive rates
  • Forced culling rates (those cows that must be culled each year)
  • Genetic improvement potential
  • Price and availability of bred replacement heifers (or cows)
  • Tax implications

Using these and other variables, Willett and Nelson (1992) developed worksheets to assist producers in analyzing alternatives for buying or raising replacement females.  We at Colorado State University have undertaken to computerize these worksheets using an Excel spreadsheet format.  This worksheet is located on the Colorado State University Animal Science homepage at: http://www.ansci.colostate.edu/beef/ . On the right side of this screen select “More” in the “News” window under Comparing Purchasing vs Raising Beef Replacment Females.  The spreadsheet can be saved to a local drive and used as a Microsoft Excel Workbook.

The worksheet considers both positive and negative financial effects if a replacement heifer is purchased rather than raised and computes breakeven values for: 1) sale price of raised heifer calf, 2) price for purchased replacement heifer, and 3) change in weaning weight needed to offset a change in replacement female procurement.  Table 1 outlines an example computation for a typical ranch situation based on estimated costs and prices in Northern Colorado in December 2011.

Table 1.  Example inputs and outcomes for change in net income and breakeven analysis for raising versus purchasing replacement heifers in Northern Colorado in December 2011. 

Item Value
Sale weight of raised heifer calf, lbs 600
Sale price of raised heifer calf, $/cwt $1.30
Operating interest, % 9%
Hay, pasture, supplement, health, labor and bull costs for raised heifer from weaning to pregnancy diagnosis, $  

$683.25

Other non-feed costs and interest of raised heifer, $ $91.25
Cost of purchased bred heifer, $ $1350.00
Breakeven sale price of raised heifer calf, $/cwt $0.66
Breakeven price for purchased bred replacement heifer, $ $1557.25

 

Based upon the example computations outlined in Table 1, the sale price of the raised heifer calf could drop from $1.30 to $0.66 per cwt before it would cost less to raise replacements from within the herd than purchasing them at $1,350.00 each.

Conversely, a producer could pay up to $1557.25 per bred heifer before it would be more costly to purchase than raise a replacement, using these assumptions.

Another approach to understand this comparison is to consider the added amount of weaning weight, per raised heifer, per year in production to offset the financial advantage of purchasing replacements, in this scenario.  In this example, it was assumed that there would be 6 years from the decision to retain the raised heifer to the sale of the last calf from that raised heifer.  Using the assumptions shown in Table 1, raised heifers would need to produce an extra 73 pounds of calf per year to make an equal contribution to ranch net income as purchased heifers.

If a ranching operation has lower cost for hay, pasture, health, etc. than the costs used here, obviously the analysis and decision would differ.  It is important to recognize, however, that costs occur even when they are not direct “out-of-pocket” costs.  For example, the opportunity costs of capital and related costs must be included to have accurate information on which to base a decision.  Secondly, this example only considers the direct financial portrayal of the input/output scenario described.  As mentioned previously, other “convenience” considerations must also be evaluated.

CONVENIENCE CONSIDERATIONS

One should not infer that factors such as source, female characteristics, and repeatability do not have financial components in the buy or purchase decision, they certainly do.  However, for purposes of simplicity, I have chosen to discuss these as a separate question.

Source.  Locating a source of replacement females that meet your objectives may be the most difficult part.  Factors such as location, production environment, genetic program, animal handling practices, etc. will all play a key role in the level of satisfaction for the female purchaser.  Establishing a partnership relationship – formal or informal – will often facilitate these issues.  When there is mutual benefit and trust, there will be more gain for both parties.

Characteristics.  Genetic, phenotypic, and behavior characteristics all must be at or above the current level produced from heifers raised from the cow herd, if purchasing females is to be a viable management practice.  There are quantitative tools such as EPDs, certification of adherence to predetermined criteria, etc. that can minimize uncertainty when moving to a purchasing option.  It will be important that the purchaser knows and can accurately describe the desired characteristics to the supplier if satisfaction is to occur.

Repeatablity.  Assuming a financial analysis indicates cost savings by purchasing replacement females and that a satisfactory source of replacement females with desired characteristics is found, it will be most beneficial if this source is readily available year after year.  Otherwise, some of the positive aspects of outsourcing (e.g. simplicity, time savings, etc.) may be lost.

A key component of this “repeatability” hinges on the buyer and seller having a clear and similar perception of value as compared to price.  It is the nature of cattle producers to think in terms of price, in fact, lowest price.  The message to become a “low-cost producer” has been preached and incorporated widely in past years.  In this context, it may be better to rephrase this as “best-cost.” In other words, paying more for the quality of replacement females that add value to your business will likely be a better management decision than purchasing the lowest price females that can be found.  Certainly price and value will become critical measures of whether a source of females is repeatable.

CALVES, BRED HEIFERS, RE-BRED 2-YEAR-OLDS, OR COWS

Throughout this paper I have deliberately used the term “replacement female” rather than “replacement heifer.” The decision to purchase or raise replacement females should not be limited to the mindset of only purchasing bred heifers.  Because of differences in production systems and resources, there may be wide latitude in the age and stage at which the female is purchased.  Associated reproductive risk will be reduced as re-bred 2-year-olds are considered when compared to purchasing heifer calves.  Additionally, purchasing heifer calves will provide more time for further selection and adaptation of the female, but the benefits of managing fewer enterprises will be gone if heifer calves are purchased.

In some cases purchasing young cows may be a viable option.  If the source ranch has a sufficiently stringent reproductive management system to identify and eliminate sub-fertile heifers, young cows that may have conceived late may be very acceptable to a ranch that calves later.  Though less predictable, purchasing cows from areas that have experienced a drought and therefore must decrease stocking rates, may also be an option.

When comparing bred heifers with re-bred 2-year-olds, price and value also play a key role.  Re-bred 2-year-olds are more likely to remain in the herd than bred heifers because they have proven their ability to conceive during the stressful year of first calving.  An additional benefit for a producer using a terminal breeding program is that the re-bred 2-year-old could be carrying a calf of the same genotype as the production herd.  If a contract agreement with a supplier for re-bred 2-year-olds were developed, specifying both the breed and the sire would be possible.

SUMMARY

Beef production is not a simple matter.  This paper has endeavored to lay out some of the considerations related to replacement female management.  The decision of whether to purchase or raise replacement females is complex.  However, the contemporary business and production environment of the beef business may persuade producers to consider alternatives to the manner in which they produce beef.  A careful analysis of financial and convenience factors, along with experience and wisdom must be used in this decision.

If the beef industry follows other businesses, it is likely that the current increase in replacement female producing entities will continue.  Specialization toward maternal multiplier operations may allow ranchers to capitalize on expertise of the supplier and develop a long-term method for outsourcing replacement females.

Links referenced within this article

http://www.ansci.colostate.edu/beef/

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