Bull power investment pays
Posted by angusupdate on January 20, 2013
Bull power investment pays
Enterprise analysis puts sire contribution in perspective
By Miranda Reiman
Many people have a distinct strategy for purchasing a new pickup. They want certain features, they’re willing to pay more for this, but not that. They figure value and how much it’ll be worth for resale X-number years down the road.
But when those same ranchers go to buy a bull, it’s hard to follow such a plan. Action at the auction can lead to price “opportunities” and buying less than they really wanted.
Jim McGrann, emeritus ranch management economist at Texas A&M, says bull-buying should be more like a vehicle purchase and less like shopping the bargain bin on an after-Christmas sale.
“When you put it in the proper perspective—what does it means in terms of depreciation per female serviced—it’s really a low cost number when one takes into account increasing salvage value,” he says, noting investment minus salvage should be spread over three to five years.
A bull that services an average of 25 cows per year for 5 years, typically accounts for less than 10% of total cow costs.
“The seedstock people do a poor job of marketing because they’re always talking up that they’re price sensitive and price competitive,” McGrann says. “They never really talk about, when you purchase a bull, you’re making a long term investment.”
He authored an Excel spreadsheet (available at http://agrisk.tamu.edu/herd-bull-investment/) that helps calculate what different bulls could mean to cow costs. Increasing bull purchase price by $200 only moves the annual cost per hundredweight (cwt.) of calf weaned by 42 cents. A $2,900 bull covering 25 cows per year divides out tot of $9.31 per cwt. calf weaned. For a $3,100 bull, that moves to $9.73.
Add another $1,000 to the bull purchase price, up to $4,100, and that per-cwt. calf cost would increase just $2.10 to $11.83.
“Buying genetics is investing in the future to conform to market demands,” McGrann says. It’s important to choose bulls that help meet what the next owners of your calves want, all the way to the consumer, he says.
When genetics help add value to the herd, the cost decreases.
The above figures are based on an average 550-pound (lb.) weaned calf. If a particular sire adds 20 lb. per animal, the cost per cwt. of calf weaned drops to $8.98 on a $2,900 bull and to $11.41 on a $4,100 sire.
Notch that up by 100 lb. to a 650-lb. weaning weight average and that cost drops by a $1.33, or more than 10%.
Selection for more carcass merit will drop net bull cost as well, given any way to capitalize on the added value. Though such qualitative traits aren’t part of this calculator, the point is part of a larger fact.
“Genetics is a cheap input,” McGrann says. “You are not going to make any money or save your costs by buying low-quality sires. There’s no way.”
Reproduction is still key, so any sire that improves that area on the balance sheet will pay more than his fair share.
The examples assume an 85% ratio of weaned calf per cow exposed. If a particular bull excels in calving ease or heifer pregnancy traits, perhaps that number could inch up to 90%.
In that case, the bull cost per cwt. of weaned calf drops by 52 cents.
Compounding some of those factors like a bull that increases reproduction and adds more pounds makes the dollars even more apparent.
McGrann’s calculator is based on producers selling calves at weaning, but he says that does not mean that weight is the only factor that matters in those calves.
“They have to be in tune with the market,” he says. “If ranchers want to get one-on-one with a feedyard guy, he’ll be straight with them. He’ll take them around pen by pen and show them what he wants.”
That includes cattle that finish heavier and ultimately sell on a quality-based grid, McGrann says.
Once they have that target in mind, it’s more important to infuse the herd with good genetics than to save a couple hundred bucks on a bull, he says.
“To say that a higher quality calf costs more to produce, boy that is not right, because the inputs that affect quality, particularly genetics, are really low cost,” he says.
McGrann says producers also need to adjust their mindset to account for today’s economics.
“If you told somebody that they had to pay $4,000 for a bull, they would have gone mad 5 years ago. But today, when you put it in perspective of $180 calves, it’s a completely different world.”