What is the value of a beef female in the beef operation vs. market?
When considering selling bred females, producers should examine the value of keeping the female versus selling her on the market, said Lisa Elliott, South Dakota State University (SDSU) Extension Commodity Marketing Specialist.
Elliott said one way to do this is to find the net present value of the female. Revenue from the female would include her calves and her own residual value.
“This factor represents a productivity index that accounts for lower and higher productivity throughout a female’s life,” she said of the net cash flow estimates which were obtained from the 2013 Food and Agricultural Policy Research Institute (FAPRI) Briefing Book (February release). “The net cash flows are calculated from the expected annual calf value and the value of the cull cow.”
She explained that the adjusted time value of money shows that a five-calf heifer is worth $1,335, referred to from here on as the net present value, which should be compared to the potential selling price of the female under the current market assumptions.
“If the female could sell for more than $1,335 today, then one should consider selling her. However, if the producer couldn’t sell the female for more than $1,335, he should keep her in the herd,” she said. “However, the age of dam adjustment could be modified if the producer follows recommended reproductive management strategies or purchases females that were developed according to recommended methods.”
Other variables to consider
As the net present value tables show, there are several components that can be changed, said Elliott.
“The first component that can change is the discount factor when interest rates change. When the discount factor increases with everything else remaining constant, the net present value will decrease,” she said.
Also, Elliott added, if the market assumptions change, such as, cull cow prices are expected to increase, with everything else remaining constant, this would raise the net present value. And, if prices for weaned calves increase, with everything else remaining constant, Elliott said this would also increase the net present value. In addition, she said producers who have a lower cost structure would see a higher net present value.
By having a better developed female, we can increase the age of dam adjustment to reflect a female that raises higher productive calves, Elliott said (changes from Table 1 to Table 2).
“The net present value increased by $61 to $1,396. By changing the number of calves expected from five to seven, the net present value actually decreases by $72 to $1,327 (changes from Table 2 to Table 3). This is due partly to net cash flows decreasing substantially past the fifth year, as well as to the expectation that projected prices of cull cows would decrease over that time,” she said.
As exhibited in Figure 1, Elliott said if producers project that the current net present value of a bred heifer is higher than the current market price, then one should retain the female in the herd.
“However, if one projects that the net present value of the bred heifer is less than the current market price, one should consider selling the female,” she said. — WLJ