As prices across the beef supply chain have hit record highs, industry discussions have become increasingly focused on the question of heifer retention and herd building – regarding both the timing and the extent. As they always have, I have little doubt that record prices will provide plenty of motivation to expand herds – some herds. While soaring prices encourage herd building, they can also become an obstacle.
Herd building, involving heifer, whether through heifer retention or buying bred heifers, is a financial decision on the part of the cattleman and timing is part of that decision. The decision to retain heifers and expand the cowherd to take advantage of a strong market involves foregone income in the current year. The motivation is to generate added revenue once that heifer has a salable calf and that motivation is reasonable. However, that additional income from another calf is 2 years down the road at the earliest with added production costs to bring that heifer into the cowherd with a marketable calf. Looking at the numbers, in today’s record-high market, the foregone income part of that decision is running around $1,800 to $2,000 per head based on prices for 550-pound heifer calves. And then, there is the added production cost for that heifer which is real and though highly variable across the country and between cow-calf operations, it likely averages nearly $1,000 annually. Again, the rancher’s motivation to increase income through building the herd to sell more calves at record prices is reasonable, but the analysis is not that simple. Those prices are just that – current. Markets change and the potential of a marketable calf is 2 years away. In markets, 2 years is a long time!
So, how about buying a bred heifer? That decision does not involve the foregone income from a heifer calf that was not sold with the calf crop. However, that foregone income is now invested cost which is higher. While the time to generate income from a calf is shortened by one year versus retaining your heifer from this year’s calf crop, prices for bred heifers are generally ranging around $3,500. That is no small figure! Since this discussion centers on heifers and heifer retention, buying bred cows or pairs to build the herd is not relevant to this discussion.
The analysis and discussion of herd building goes beyond record-high markets. It is an important financial decision made by ranchers and farmers and that decision goes beyond current market conditions in a changing market environment. My market outlook discussions have included these points as part of my analysis.