As cattle producer interest in possible beef herd expansion grows, it is important to recognize what resources are available to guide these investment decisions and to appreciate key variables that drive expected investment returns.
By: Lee Schulz, Iowa State University Extension livestock economist, and Patrick Gunn, ISU Extension cow-calf specialist
Raising Versus Buying Heifers for Beef Cow Replacement
Many producers raise their own heifers as a way to maintain or build their cowherd. However, purchasing replacements may sometimes be an attractive option. Selecting the most economical source of replacement heifers has major implications for effectively utilizing resources, controlling costs, and sustaining the business for the long-term. There are several factors to consider when determining an optimal herd replacement strategy. Considering these factors can determine the difference between profit and loss in any given year. Therefore, producers must be flexible and capable of modifying herd replacement strategies as needed to take advantage of changing conditions.
Two Ag Decision Maker decision tools have been developed to aid in decisions regarding raising or buying heifers for beef cow replacement. The first decision tool, "B1-73, Buying Heifers for Beef Cow Replacement", considers the returns and costs that will change if replacement heifers are purchased rather than raised from within the herd. The second decision tool, "B1-73, Raising Heifers for Beef Cow Replacement", considers the returns and costs that will change if replacement heifers are raised from within the herd rather than purchased. Both decision tools are available to download.
Net Present Value of Beef Replacement Females
Before decisions regarding purchasing or retaining replacement females are made, producers may want to consider the economic value of a replacement entering their herd. One way to analyze this investment is to calculate the net present value (NPV), which reﬂects the value of potential future returns in today’s dollars based on an assumed rate of return. When it comes to projecting the net present value offered by purchasing or retaining a replacement female, a number of assumptions about the future must be made.
An Ag Decision Maker decision tool, "B1-74, Net Present Value of Beef Replacement Females", has been developed to aid in decisions regarding purchasing or retaining available replacements. Projecting the net present value offered by purchasing or retaining a replacement female allows producers to best reﬂect upon the economic opportunity presented by any candidate investment in beef replacements. This decision tool is available to download.
Producers analyzing the returns to buying versus raising replacements or the economic value of a replacement entering the herd will want to base the analyses on the most likely assumptions. In addition to baseline results, analyses should include several key “what if” scenarios (i.e., sensitivity analyses around key variables in the model). Then the resulting analyses can be evaluated in relation to the risks associated with not being able to precisely predict the future.