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Money Ahead Before a Calf Hits the Ground?

Increased calf prices also mean increased input costs for the cow herd. Record-high calf prices equal record-high bull prices. So what is a producer to do?

Seldom do cow-calf producers complain about the current record-high calf prices. We are, indeed, in unprecedented times in the beef industry.

However, increased calf prices also mean increased input costs for the cow herd. One of the input costs that producers are facing is the increased cost of buying good breeding bulls. Record-high calf prices equal record-high bull prices.

AuctioneersSo what is a producer to do? Remembering what we paid for bulls last year and going to current sales with this number in mind is very easy. However, three things may happen if you take this approach: 1) You don’t go home with a bull, 2) You go home with a bull that is of much poorer quality than you had hoped to buy or 3) You get lucky and find a steal at the sale.

Option 1: This results in a fundamental problem on a cow-calf operation. A lack of bull power means a sacrifice in cow fertility (especially if you only run one bull). No bulls equal big problems for beef producers.

Option 2: If at all possible, do not sacrifice bull quality; bulls are a long-term investment in the future of your herd. This investment in a bull spans beyond next year’s calf crop and, if breeding females are kept for herd replacements, it easily could span into the middle of the next decade and beyond.

Option 3: This is much less likely to happen in 2012 because we’ve heard of many reports of sale averages being $1,500 to $2,000 over a year ago, and those year-ago prices were well above the previous year. We never can rule out the possibility of finding a steal (in fact, isn’t this half the fun of going to the sales?), but we can be very honest and admit we very likely will need to spend more.

But what other options are available? With current bull prices, producers may want to evaluate the cost comparisons among natural-service bulls and artificial insemination. To make a true financial comparison, producers must consider the entire cost of three factors: 1) cost of natural-service bulls, 2) cost of artificial insemination and 3) comparisons of costs among the systems.

When considering the costs of natural-service bulls, the actual purchase price is just the beginning. Every year, producers have certain costs to maintain bulls and keep them healthy: feed, yardage, vaccinations, breeding soundness exams. These costs will accrue every day the bull is alive, so another important cost determinant is what the useful life of the bull will be in your herd.

I like to use a default useful life value of three years for bulls in most commercial operations. This number is chosen because many producers have bulls that breed their heifers and a different battery of bulls for their cow herd.

The year a bull is purchased and turned in with the cow herd, he get cows pregnant, the next year his daughters are born, and the following year the daughters are bred by the heifer bulls. If the bull is still around on year four, he will be covering his daughters on pasture, hence the three years.

After that, the bull will be sold and a salvage value obtained. This value is credited back to the positive side of the balance sheet. Add risk of death/injury and interest on bull and feed purchases, and you have the costs associated with maintaining breeding bulls (minus fence repair and that dent in your pickup).

The next pertinent question to ask is what the stocking rate for pastures will be. The nationwide average stocking rate is 25 cows per mature bull and 15 cows per yearling bull. This number is highly variable among producers. Divide the total bull cost per year of his useful life by the number of cows he is expected to cover each year, and you will have the cost of natural service per cow.

The cost of AI is a much simpler calculation. Estrous synchronization is a powerful tool for cattlemen. By running cattle through working facilities three times and giving appropriate pharmaceuticals, all cows can be bred via AI and have the opportunity to become pregnant on the first day of the breeding season. Costs include all pharmaceuticals, semen, supplies and labor.

The next step is to compare the systems, but with applicability in mind. After a single round of fixed-time AI, a conservative pregnancy rate for the herd would be 50 percent (if body condition, nutritional status and days postpartum were all sufficient). This means that you still would need to use herd bulls to cover open cows, but only half as many as you would if you relied solely on bull breeding.

To calculate the cost of the AI breeding system, we need to add the cost of AI in all the cows to the cost of running half the number of herd bulls (or an alternative way to think of this is to double the number of cows per bull). This calculation is also on a per-cow basis and can be compared with the cost of running only natural-service bulls.

If this exercise is followed, given today’s market prices, producers may be surprised that at a certain bull purchase price point, incorporating AI into a herd is less expensive than buying enough breeding bulls to get their cows pregnant. When considering this economic question, producers must use their actual costs for feed, yardage, veterinary care, labor, semen and pharmaceuticals. Once these costs are known, producers can evaluate different scenarios on their operations to determine which is truly the best in their given situation.

A simple spreadsheet was developed to help producers work through comparing the cost of breeding systems using values from their operation. Call your county Extension agent or me for more details.

Another very important note: We have not even begun to talk about any additional value that AI-bred calves may have in the marketplace or other benefits to calving distribution and cow herd fertility. This was only a comparison of the substitution price for using AI in place of bull breeding, and you can draw a simple conclusion: You may be money ahead to incorporate AI before a calf ever hits the ground!

Carl Dahlen, NDSU Extension Beef Cattle Specialist

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