Buying Decisions

No two cattle operations are exactly the same, especially when it comes to the business side of the ledger. Estimate net present value of an asset, in this case a cow or heifer, and potential future value is easier to visualize.

That's the idea behind the "Cow Bid Estimator" out of Texas A&M's AgriLife Extension service.

The application, which works as an Excel spreadsheet, has a few years on it. It was first developed by A&M's Jim McGrann, but is back with updates that allow producers to further personalize the free application to include calf management practices (vaccination program, use of implants, castration, deworming) and reproductive programs (pregnancy testing of cows, bull soundness exams, and reproductive vaccinations). Mac Young, A&M's Extension economist at Corpus Christi, worked on the updates.

"The program includes things like depreciation of an animal, taxes, when you normally wean calves, financing costs ... really all the costs that might be associated with that cow or heifer," Young explained.

"This works off of net present value, which is when you discount future cash inflows and outflows. The outflow is where your expenses are, and that is spread out over the number of years you intend to keep that cow. It is personalized, based on your numbers, not my numbers or any university or company data," added Young.

The tool includes financing costs and accounting for salvage values. It can be adapted to any region, and can now show profit or loss on an animal for up to 7 years out. The economist said he knows producers who have used the program for 10 years, and others who have held back because they feel it's too complicated. He'd like to convince it's not.

"What I see often is that producers have not analyzed what they can afford to pay for a cow, or a heifer. They go to an auction, and they see something they really like, and bid on it. Maybe they get into a bidding war," he said. "From what I've seen you have to be very careful whether you're bidding online, buying private treaty or going to the auction barn. It's critical to know what you can afford."

Young added in some cases genetic improvement for the herd overall can be a reason to justify a more expensive animal. Even then, he noted, producers have to be careful not to pay more than an animal can return to the operation.

"That net present value is not a profit measure, but an investment analysis. That's how you look at the purchase of a cow. Is that animal a good investment? What are the projected returns from that investment?"

Given that cow and heifer prices are a moving target, Young said it's important not to assume year to year the same things always make sense from a financial standpoint. Everything is always changing.

"In our area, bred heifers are running about where they were a year go," said Young. "But it depends on the week, and whether you get into a bidding war, or what the genetic package is. I'd say at sale barns we are seeing choice bred cows range from $1,200 to $1,350 now. Private treaty purchases from a named herd are probably a little more."

Recent losses in the wake of Hurricane Harvey, while devastating to those ranchers impacted, have not seriously affected bred heifer prices in the region, added Young. "In general, across Texas, this had a minimal price impact. If it happened in your herd, it was major. But if we're talking about prices, it was a temporary adjustment."

The Cow Bid Estimator is free and can be found here: https://agrilife.org/…

(AG/SK)

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