The following article is from SDSU Extension:
by Lisa Elliot, Assistant Professor & Commodity Marketing Specialist
When considering selling bred females, producers should examine the value of keeping the female versus selling her on the market. 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.
Net cash flow estimates were obtained from the 2013 Food and Agricultural Policy Research Institute (FAPRI) Briefing Book (February release). The age of dam adjustment was adopted from the work of Dr. Harlan Hughes (e.g., Hughes, 2013). This factor represents a productivity index that accounts for lower and higher productivity throughout a female’s life. The net cash flows are calculated from the expected annual calf value and the value of the cull cow. The following tables are modified based on previous work by Parcell and Franken (2009).
The adjusted time value of money shows that a five-calf heifer is worth $1,335, 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. 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.
By having a better developed female, we can increase the age of dam adjustment to reflect a female that raises higher productive calves (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.
As exhibited in Figure 1, 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 that the current market price, one should consider selling the female.
Hughes, H. (2013, May 27). If Nature Cooperates, Good Times Are Ahead For Beef Producers. [Market Advisor Blog, Beef Magazine]. Retrieved from September 10, 2013, from http://beefmagazine.com/blog/if-nature-cooperates-good-times-are-ahead-beef-producers.
Parcell, J. and J. Franken. (2009). Dam Productive Baseline, Volume 1. Beef Cow Economics Newsletter. Department of Agricultural Economics, University of Missouri.
Parcell, J. and J. Franken. (2009). Improving Calving Consistency, Volume 3. Beef Cow Economics Newsletter. Department of Agricultural Economics, University of Missouri.
Source: SDSU Extension
Posted by Haylie Shipp