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A Strategy for Building a Beef Cow Herd

Building a beef cow herd is challenging for beginning and younger cow-calf producers due to the intensive capital requirements and approximate 27-month lag between the initial purchase of heifers and the sale of a calf crop. A three-phase herd-building strategy and summarization of the results of an economic analysis of the strategy for the Oklahoma cattle market are described below.


In Phase I, the producer borrows the necessary funds to purchase 100 weaned heifers in this example. (Alternatively, bred heifers could be purchased to shorten the time to calf sales, but at a higher initial cash outlay.) The weaned heifers are placed on pasture and bred at around 14 months to 15 months of age. Open heifers are sold as feeder heifers and the revenue is used to pay down debt, as well as feed and veterinary expenses. In Phase II, heifers calve around 24 months of age and calves are weaned with 70% of heifer calves retained as breeding stock. Steer calves and remaining heifer calves are sold. In Phase III, cows are rebred three months after their first calving and sold about four months later. As second-calf heifers (“two-coming-threes”), they are at their highest market value. It is assumed open cows are culled at cull cow prices.1 By selling weaned steer and heifer calves, rebred cows and culled cows, sufficient cash may be generated to repay debt incurred for the initial heifer purchase and operating expenses. At the end of Phase III, the producers retains part of the heifer crop—approximately 29 head. In most years, the producer has paid off all debt and operating expenses, owning the 29 heifers debt free. Replicating the process, the producer can build a herd of 100 cows in about four years.

1 This is a conservative assumption as the culled cows are under 30 months of age and qualify as “Grade A” beef.

 

In ShalekBriski et al. (2021), this strategy using calf prices, cull cow prices, feed prices and pasture rental rates for Oklahoma was analyzed. Data from 2003-2019 were used. The production assumptions and production costs are summarized in Tables 1 and 2. Oklahoma budgets resulted in positive net cash flows and net returns for 13 of the 14 cycles, which is summarized in Table 3. Feed costs were approximated using

 

Table 1.

  Production Assumptions*  
Phase I    
  Heifer Weight at Purchase 450 pounds
  Heifer Age at Purchase 205 days
  Death Loss 0.50%
  Percent of Initial Heifer Purchase Financed 100%
  Interest Rate of Financed Initial
Heifer Purchase
6%
  Age at Breeding 450 days
  Age at First Cull 570 days
  Cull Rate 15%
  Weight at First Cull 810 pounds
Phase II    
  Age at Calving 733 days
  Weaning Percentage 98%
  Calf Age at Weaning 205 days
  Weaning Weight: Steer Calves 450 pounds
  Weaning Weight: Heifer Calves 425 pounds
  Cow Rebreeding Age 833 days
  Cull Open Cows Age 938 days
  Weight of Culled Open Cows 1,180 pounds
Phase III    
  Conception Percentage 85%
  Age of Bred “Twos-coming-Threes”
when sold
1,028 days
  Weight of Bred “Twos-coming-Threes”
when sold
1,270 pounds
  Assumptions for All Phases  
  Percentage of Operating Expenses Financed 75%
  Interest Rate of Operating Expenses Financed 5%

*Source: ShalekBriski et al. (2020)

 

CowCulator (Lalman and Gill, 2017), feed prices and pasture rental rates varying by year.
Results are encouraging for most cycles except for the 2014 cycle. If heifer calves were purchased in fall 2014, net cash flow was projected to be negative as feeder calf prices in 2014 were abnormally high. Conversely, cattle prices were lower in 2016 when the steers and heifers from the 2014-purchased heifers were sold. This resulted in negative cash flows for the fall 2014 cycle.

 

Table 2.

  Production costs ($ per head)*  
Phase I    
  Feed Expense: Pre-breeding 250d
  Veterinary and Medical Expense: Pre-breeding $15
  Breeding Cost $25
  Feed Expense: Gestation 283d
  Veterinary and Medical Expense: Gestation $5
Phase II    
  Feed Expense: Lactation, Rebreeding
and Post-Lactation
205d
  Veterinary and Medical Expense: Lactation,
Rebreeding and Post-Lactation
$15
  Breeding Cost $25
Phase III    
  Feed Expense: Bred Cows Post Weaning 90d
  Open Cows Post Weaning 7d
  Veterinary and Medical Expense $5

*Source: ShalekBriski et al. (2021)

 

The abnormally high calf prices in fall 2014 resulted in high net cash flows and net returns for the cycles beginning in 2012 and 2013. Initial heifer purchases were at lower prices relative to 2014 prices. Sales of calves, rebred cows and cull cows from the 2012 cycle were made in fall 2014, resulting in extremely high returns for the 2012 cycle. The 2013 cycle sold cull heifers as feeder heifers into the fall 2014 market, also resulting in high net cash flow and returns.
Sensitivity analyses were used to evaluate the robustness of the strategy to decreases in herd revenues and increases

 

Table 3.

  Baseline and sensitivity of net cash flow (top) and net return (bottom) due to reduced revenue and increased cost.        
  Revenue as % of baseline     Cost as % of baseline  
Year Baseline
Year (100%)
90% 75% 110% 125%
2003 $38,963 $26,038 $6,651 $29,934 $16,392
  $54,594 $40,106 $18,374 $45,565 $32,023
2004 $11,956 $30 -$17,859 $1,225 -$950
  $25,876 $12,528 -$7,419 $15,145 -$6,631
2005 $19,132 $6,914 -$11,414 $8,827 -$6,631
  $33,139 $19,520 -$908 $22,834 $7,376
2006 $7,181 $2,629 -$19,141 $10,189 -$4,527
  $19,999 $10,189 -$9,527 -$9,552 -$24,370
2007 $326 $1,279 $15,344 $1,279 -$15,344
  $12,361 $29,782 $15,735 $28,782 $15,735
2008 $39,147 $29,782 $26,327 $42,493 $26,327
  $53,270 $42,493 $12,881 $45,598 $31,490
2009 $55,004 $15,373 $12,881 $45,598 $31,490
  $72,085 $55,471 $30,550 $60,971 $44,301
2010 $55,070 $37,437 $10,987 $42,944 $24,754
  $74,210 $54,663 $25,342 $60,170 $39,019
2011 $69,732 $50,813 $22,436 $77,753 $56,508
  $91,917 $70,780 $39,075 $109,236 $83,912
2012 $126,118 $96,624 $79,396 $76,460 $79,966
  $162,136 $129,040 $33,372 $101,725 -$71,794
2013 $90,159 $67,444 $33,372 $76,460 $55,912
  $118,231 $92,790 $54,426 $101,725 $79,966
2014 -$24,508 -$41,008 -$65,649 -$43,466 -$71,794
  -$9,026 -$27,018 $53,991 -$29,476 -$60,136
2015 $3,032 -$12,522 -$35,853 -$12,219 -$35,095
  $22,636 $5,122 -$21,150 $5,425 -$20,392
2016 $38,695 $23,637 $1,049 $27,506 $10,723
  $57,777 $40,811 $15,361 $44,680 $25,034
           
Cash flow≥0 13 years* 10 years 8 years 10 years 8 years
Net return≥0 13 years 13 years 8 years 13 years 9 years

* Number of years (out of 14 simulated) with positive net cash flows (top) and net returns (bottom).

 

in heifer purchase cost and operating expenses. The resulting net cash flows and net returns also are reported in Table 3. Revenues were decreased by 10% and 25%. At the 10% revenue reduction level, the strategy is projected to have positive net cash flows and net returns 10 and 13 cycles of the 14 cycles. At the lowest revenue level, just 75% of baseline, the strategy is projected to have positive net cash flows and net returns eight of the 14 cycles. Similarly, all costs were increased by 10% and 25%. Net cash flows and net returns are slightly less sensitive to cost increases than to revenue decreases. A 10% increase in costs had projected positive net cash flows and net returns 10 and 13 cycles of the 14 cycles. A 25% increase in costs had projected positive net cash flows and net returns eight and nine cycles, respectively, of the 14 cycles evaluated.


Along with the high capital outlays and long-term lags, beginning cow-calf producers face other difficulties, such as land acquisition, student loan debt and knowledge to efficiently run the operation. However, the results of this strategy are encouraging. The timing of purchases relative to large price swings results in either large positive (if bought low and sold high) or negative (if bought high and sold low) net cash flows and net returns. In more “typical” years, building a herd for a first-time cow-calf producer seems financially feasible. Operating debt is incurred but can be paid down through selling cull heifers, steer calves and open cows. However, individual producers should work with county Extension educators and agricultural lenders to evaluate their personal situation before investing in breeding heifers.

 

References

ShalekBriski, A. E.A. DeVuyst, C.S. DeVuyst, R.Sahs, M. Stockton and K. Ramy. “Financing Beef Cow Herd Building for Beginning Ranchers,” Journal of Applied Farm Economics, 2021 (forthcoming).

 

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