Cattle inventory numbers and cow herd size vary cyclically over time. Historically, cattle cycles have lasted about 10 years. However, the most recent cycle is in its 15th year (1990 to 2004) as a result of an eight-year period of liquidation caused by multi-year drought in many western states. In 2004 and 2005, many cow-calf producers will likely begin to rebuild their cow herd in response to improved profit projections and  drought relief. Purchasing bred heifers or young cows will be an option for some producers; others will likely choose to retain additional females from within their own herd. While the economic cost differences to purchasing replacement stock versus retaining females is important to evaluate when making the decision to rebuild herds or replace older stock, it is also necessary to consider the budgetary effects of increasing the replacement rate in a cow herd

Mark, Darrell R

Rasby, Richard J.

English

UNL | Libraries

University of Nebraska - Lincoln 
DigitalCommons@University of Nebraska - Lincoln 
Faculty Publications: Agricultural Economics Agricultural Economics Department 
January 2004 
Effects of Replacement Rate on Cow Herd Budget 
Darrell R. Mark 
University of Nebraska-Lincoln, dmark2@unl.edu 
Richard J. Rasby 
University of Nebraska-Lincoln, rrasby1@unl.edu 
Follow this and additional works at: https://digitalcommons.unl.edu/ageconfacpub 
 Part of the Agricultural and Resource Economics Commons 
Mark, Darrell R. and Rasby, Richard J., "Effects of Replacement Rate on Cow Herd Budget" (2004). Faculty 
Publications: Agricultural Economics. 59. 
https://digitalcommons.unl.edu/ageconfacpub/59 
This Article is brought to you for free and open access by the Agricultural Economics Department at 
DigitalCommons@University of Nebraska - Lincoln. It has been accepted for inclusion in Faculty Publications: 
Agricultural Economics by an authorized administrator of DigitalCommons@University of Nebraska - Lincoln. 
NF610
Effects of Replacement Rate
on Cow Herd Budget
Darrell R. Mark, Extension Livestock Economist; and Rick Rasby, Extension Beef Specialist
Cattle inventory numbers and cow herd size vary cycli-
cally over time. Historically, cattle cycles have lasted about 
10 years. However, the most recent cycle is in its 15th year 
(1990 to 2004) as a result of an eight-year period of liquidation 
caused by multi-year drought in many western states. In 2004 
and 2005, many cow-calf producers will likely begin to rebuild 
drought relief. Purchasing bred heifers or young cows will 
be an option for some producers; others will likely choose to 
retain additional females from within their own herd. While 
the economic cost differences to purchasing replacement stock 
versus retaining females is important to evaluate when making 
the decision to rebuild herds or replace older stock, it is also 
necessary to consider the budgetary effects of increasing the 
replacement rate in a cow herd.
Issues Associated With Higher Replacement Rates
Both income streams and expenses are likely to change as 
a result of increasing the replacement rate in a beef cow herd. 
Assuming that replacements are retained from the herd and 
that herd size is held constant, revenue from heifer calf sales 
will decrease and cull cow income will increase. Revenue from 
heifers typically wean lighter calves than the replaced older 
stock. Beef Improvement Federation data suggests that, rela-
60 pounds lighter and heifer calves 66 pounds lighter and 
second-calf cows will wean steer and heifer calves 40 and 
54 pounds lighter, respectively. As a result of a younger cow 
herd, producers will likely sell less total weight; however, 
the typical feeder cattle price slide will result in higher per 
hundred weight prices for the lighter calves. Additionally, if 
the higher replacement rate leads to more females of higher 
quality in the cow herd and, eventually, higher quality calves, 
calf-crop revenue may improve.
Costs are also likely to increase as a result of a higher 
replacement rate in a cow herd. Feed costs may increase as 
a result of retaining more heifers. Because these females are 
still growing as well as being prepared to produce a calf, high 
quality feeds and forages are needed in the diet. In addition, 
the extra requirement for lactation and repair of the reproduc-
tive tract for the next pregnancy, but these heifers still have 
a nutrient requirement for growth. Additionally, labor costs, 
management costs, and capital costs will also increase.
Budget Simulation
The income and cost impacts from higher replacement 
rates vary across producers depending on feeding practices, 
facilities, and other management decisions. In the following 
analysis, a March-calving herd is used in which heifers are 
retained from within the herd and are developed for 16 months 
(20 percent will ultimately be culled after one year). The feeding 
program includes grazing during the summer growing season 
and winter grazing with minimum hay supplementation. The 
herd death loss is 1.5 percent and 90 percent of the cows wean 
a calf. Tables I and II detail other budget assumptions.
With the assumptions in the tables and the average 
livestock budget, income and expenses were calculated for 
replacement rates ranging from 10 percent to 30 percent in 5 
percent increments (Table III). Revenue from steer calf sales 
remain fairly constant across the replacement rates because 
are offset by the higher per hundred price ($0.12/cwt for 
each pound). As replacement rate increases, heifer calf sales 
decrease and cull cow sales increase because more heifers 
are retained in the herd and more cull cows are sold. Total 
income from steer and heifer calf and cull cow sales declines 
about $0.80/head for each 1 percent increase in replacement 
rate. However, this does not factor in potential gains from 
improved genetics in the herd.
The largest cost increases from increasing replace-
ment rate are in the feed category, increasing from about 
$337/head at the 10 percent replacement rate to $380/
head at the 30 percent replacement rate, or about $2.16/
head for each 1 percent increase in replacement rate. Other 
cash costs, labor costs, ownership costs, and overhead and 
management costs increased about $0.42/head, $0.72/head, 
$0.49/head, and $0.04/head, respectively, for each 1 percent 
increase in replacement rate. Thus, total costs increased 
by nearly $77/head for the herd with a 30 percent replace-
ment rate compared to a 10 percent replacement rate. The 
increases in expenses and decline in total income observed 
by increasing the replacement rate increased the net loss 
®
®
by almost $93/head for the 30 percent replacement rate 
compared to the 10 percent rate. The budget used in this 
simulation produced losses, partially as a result of including 
overhead and management costs and opportunity costs of 
animal ownership that many producers might not account for 
in their cash-based budgets. Thus, these are economic returns
rather than accounting returns.
This simulation assumes a constant herd size, or that 
the number of cows culled equals the number of replace-
ment heifers. In order to increase herd size, the percentage 
of cows culled must be lower than the replacement rate. This 
also impacts the cow herd budget because the cull income is 
reduced while the heifer calf sales are lowered. Assuming a 
heifer replacement rate of 20 percent (20 percent of which 
are culled before entering the herd) and a cull cow rate of 10 
percent, a producer could increase the herd size by about 10 
percent within two years. In doing so, cull cow income would 
be $27.60/head less (fewer available culls to sell) and feed 
costs would be $6.30/head higher (more young cows in the 
herd) for those years of growth.
Implications
Do the simulated budgets in Table III indicate that 
replacements should not be made in the cow herd? No. 
While they do indicate that higher replacement rates have 
the effect of potentially reducing revenue and increas-
ing costs, these budgets do not account for several things, 
including cow-herd productivity. The budget simula-
tion does, however, suggest that maintaining a moderate 
replacement rate rather than a higher rate (30 percent) 
could be useful in improving the bottom line for cow-calf 
producers. Additionally, it suggests that if higher replace-
ments are needed, timing it during periods of greater 
The focus on marketing also changes as replacement rate 
increases. If a producer maintains a high replacement rate, 
it is important to aggressively market cull animals because 
they become a greater proportion of the total income to the 
operation.
UNL Extension publications are available online 
at http://extension.unl.edu/publications.
Table III. Cow-Calf Budgets By Replacement Rate.
Replacement Rate
  10% 15% 20% 25% 30%
Income --------------------------------------------- dollars per head---------------------------------------------
Steer Calf Sales 295.72 294.80 293.88 292.95 292.03
Heifer Calf Sales 185.04 157.07 129.10 101.14 75.48
Cull Cow Sales 49.93 74.23 98.52 122.82 147.12
Total Income 530.69 526.10 521.50 516.91 514.63
Expenses
Feed 336.56 347.37 358.18 368.99 379.80
Other Cash Costs 29.05 31.17 33.28 35.40 37.49
Labor 49.20 52.80 56.40 60.00 63.60
Ownership Costs 97.59 100.05 102.57 105.02 107.47
Overhead & Management 21.95 22.16 22.37 22.58 22.79
Total Expenses 534.36 553.55 572.80 591.99 611.16
Net Income (Loss) (3.67) (27.45) (51.30) (75.08) (96.53)
Table I. Prices Used In Budget Simulation.
Growing Season Grazing $24/AUM
Dormant Season Grazing $15/AUM
Hay $55/ton
32% Protein $0.12/lb
Corn $2.55/bu
Salt and Mineral $0.12/lb
575 lb. Steer Calf Sale Price $115/cwt
525 lb. Heifer Calf Sale Price $102/cwt
Steer Calf Price Slide (per lb.) $0.12/cwt
Heifer Calf Price Slide (per lb.) $0.09/cwt
Cull Cow Sale Price $46/cwt
Cull Heifer Sale Price (725 lb.) $85/cwt
Cull Bull Sale Price $52/cwt
Labor Costs $8.00/hour
Ownership Costs 7.0%
Overhead Costs 5.0%
Interest Costs (Purchased Feed & Cash Costs) 8.5%
Table II. Income and Cost Assumptions In Budget Simulation.
First-Calf Heifers Mature Cows
(per cow unit) (per cow unit)
Growing Season Grazing 4.0 AUM 8.16 AUM
Dormant Season Grazing 3.5 AUM 4.71 AUM
Hay 1.75 tons 0.75 tons
32% Protein 320 lbs —
Corn 11 bu —
Salt and Mineral 40 lbs 60 lbs
Steer Calf Weaning Weight 515 lbs 575 lbs
Heifer Calf Weaning Weight 471 lbs 525 lbs
Labor 9 hours 5.25 hours
Index:  Farm Management
Budgeting
Issued September 2004
Extension is a Division of the Institute of Agriculture and Natural Resources at the University of Nebraska–Lincoln cooperating with the Counties
and the United States Department of Agriculture.
University of Nebraska–Lincoln Extension educational programs abide with the nondiscrimination policies of the University of Nebraska–Lincoln
and the United States Department of Agriculture.
© 2004, The Board of Regents of the University of Nebraska on behalf of the University of Nebraska–Lincoln Extension.  All rights reserved.


Effects of Replacement Rate on Cow Herd Budget

DigitalCommons@University of Nebraska

University of Nebraska - Lincoln DigitalCommons@University of Nebraska - Lincoln Faculty Publications: Agricultural Economics Agricultural Economics Department January 2004 Effects of Replacement Rate on Cow Herd Budget Darrell R. Mark University of Nebraska-Lincoln, dmark2@unl.edu Richard J. Rasby University of Nebraska-Lincoln, rrasby1@unl.edu Follow this and additional works at: https://digitalcommons.unl.edu/ageconfacpub  Part of the Agricultural and Resource Economics Commons Mark, Darrell R. and Rasby, Richard J., "Effects of Replacement Rate on Cow Herd Budget" (2004). Faculty Publications: Agricultural Economics. 59. https://digitalcommons.unl.edu/ageconfacpub/59 This Article is brought to you for free and open access by the Agricultural Economics Department at DigitalCommons@University of Nebraska - Lincoln. It has been accepted for inclusion in Faculty Publications: Agricultural Economics by an authorized administrator of DigitalCommons@University of Nebraska - Lincoln. NF610Effects of Replacement Rateon Cow Herd BudgetDarrell R. Mark, Extension Livestock Economist; and Rick Rasby, Extension Beef SpecialistCattle inventory numbers and cow herd size vary cycli-cally over time. Historically, cattle cycles have lasted about 10 years. However, the most recent cycle is in its 15th year (1990 to 2004) as a result of an eight-year period of liquidation caused by multi-year drought in many western states. In 2004 and 2005, many cow-calf producers will likely begin to rebuild drought relief. Purchasing bred heifers or young cows will be an option for some producers; others will likely choose to retain additional females from within their own herd. While the economic cost differences to purchasing replacement stock versus retaining females is important to evaluate when making the decision to rebuild herds or replace older stock, it is also necessary to consider the budgetary effects of increasing the replacement rate in a cow herd.Issues Associated With Higher Replacement RatesBoth income streams and expenses are likely to change as a result of increasing the replacement rate in a beef cow herd. Assuming that replacements are retained from the herd and that herd size is held constant, revenue from heifer calf sales will decrease and cull cow income will increase. Revenue from heifers typically wean lighter calves than the replaced older stock. Beef Improvement Federation data suggests that, rela-60 pounds lighter and heifer calves 66 pounds lighter and second-calf cows will wean steer and heifer calves 40 and 54 pounds lighter, respectively. As a result of a younger cow herd, producers will likely sell less total weight; however, the typical feeder cattle price slide will result in higher per hundred weight prices for the lighter calves. Additionally, if the higher replacement rate leads to more females of higher quality in the cow herd and, eventually, higher quality calves, calf-crop revenue may improve.Costs are also likely to increase as a result of a higher replacement rate in a cow herd. Feed costs may increase as a result of retaining more heifers. Because these females are still growing as well as being prepared to produce a calf, high quality feeds and forages are needed in the diet. In addition, the extra requirement for lactation and repair of the reproduc-tive tract for the next pregnancy, but these heifers still have a nutrient requirement for growth. Additionally, labor costs, management costs, and capital costs will also increase.Budget SimulationThe income and cost impacts from higher replacement rates vary across producers depending on feeding practices, facilities, and other management decisions. In the following analysis, a March-calving herd is used in which heifers are retained from within the herd and are developed for 16 months (20 percent will ultimately be culled after one year). The feeding program includes grazing during the summer growing season and winter grazing with minimum hay supplementation. The herd death loss is 1.5 percent and 90 percent of the cows wean a calf. Tables I and II detail other budget assumptions.With the assumptions in the tables and the average livestock budget, income and expenses were calculated for replacement rates ranging from 10 percent to 30 percent in 5 percent increments (Table III). Revenue from steer calf sales remain fairly constant across the replacement rates because are offset by the higher per hundred price ($0.12/cwt for each pound). As replacement rate increases, heifer calf sales decrease and cull cow sales increase because more heifers are retained in the herd and more cull cows are sold. Total income from steer and heifer calf and cull cow sales declines about $0.80/head for each 1 percent increase in replacement rate. However, this does not factor in potential gains from improved genetics in the herd.The largest cost increases from increasing replace-ment rate are in the feed category, increasing from about $337/head at the 10 percent replacement rate to $380/head at the 30 percent replacement rate, or about $2.16/head for each 1 percent increase in replacement rate. Other cash costs, labor costs, ownership costs, and overhead and management costs increased about $0.42/head, $0.72/head, $0.49/head, and $0.04/head, respectively, for each 1 percent increase in replacement rate. Thus, total costs increased by nearly $77/head for the herd with a 30 percent replace-ment rate compared to a 10 percent replacement rate. The increases in expenses and decline in total income observed by increasing the replacement rate increased the net loss ®®by almost $93/head for the 30 percent replacement rate compared to the 10 percent rate. The budget used in this simulation produced losses, partially as a result of including overhead and management costs and opportunity costs of animal ownership that many producers might not account for in their cash-based budgets. Thus, these are economic returnsrather than accounting returns.This simulation assumes a constant herd size, or that the number of cows culled equals the number of replace-ment heifers. In order to increase herd size, the percentage of cows culled must be lower than the replacement rate. This also impacts the cow herd budget because the cull income is reduced while the heifer calf sales are lowered. Assuming a heifer replacement rate of 20 percent (20 percent of which are culled before entering the herd) and a cull cow rate of 10 percent, a producer could increase the herd size by about 10 percent within two years. In doing so, cull cow income would be $27.60/head less (fewer available culls to sell) and feed costs would be $6.30/head higher (more young cows in the herd) for those years of growth.ImplicationsDo the simulated budgets in Table III indicate that replacements should not be made in the cow herd? No. While they do indicate that higher replacement rates have the effect of potentially reducing revenue and increas-ing costs, these budgets do not account for several things, including cow-herd productivity. The budget simula-tion does, however, suggest that maintaining a moderate replacement rate rather than a higher rate (30 percent) could be useful in improving the bottom line for cow-calf producers. Additionally, it suggests that if higher replace-ments are needed, timing it during periods of greater The focus on marketing also changes as replacement rate increases. If a producer maintains a high replacement rate, it is important to aggressively market cull animals because they become a greater proportion of the total income to the operation.UNL Extension publications are available online at http://extension.unl.edu/publications.Table III. Cow-Calf Budgets By Replacement Rate.Replacement Rate  10% 15% 20% 25% 30%Income --------------------------------------------- dollars per head---------------------------------------------Steer Calf Sales 295.72 294.80 293.88 292.95 292.03Heifer Calf Sales 185.04 157.07 129.10 101.14 75.48Cull Cow Sales 49.93 74.23 98.52 122.82 147.12Total Income 530.69 526.10 521.50 516.91 514.63ExpensesFeed 336.56 347.37 358.18 368.99 379.80Other Cash Costs 29.05 31.17 33.28 35.40 37.49Labor 49.20 52.80 56.40 60.00 63.60Ownership Costs 97.59 100.05 102.57 105.02 107.47Overhead & Management 21.95 22.16 22.37 22.58 22.79Total Expenses 534.36 553.55 572.80 591.99 611.16Net Income (Loss) (3.67) (27.45) (51.30) (75.08) (96.53)Table I. Prices Used In Budget Simulation.Growing Season Grazing $24/AUMDormant Season Grazing $15/AUMHay $55/ton32% Protein $0.12/lbCorn $2.55/buSalt and Mineral $0.12/lb575 lb. Steer Calf Sale Price $115/cwt525 lb. Heifer Calf Sale Price $102/cwtSteer Calf Price Slide (per lb.) $0.12/cwtHeifer Calf Price Slide (per lb.) $0.09/cwtCull Cow Sale Price $46/cwtCull Heifer Sale Price (725 lb.) $85/cwtCull Bull Sale Price $52/cwtLabor Costs $8.00/hourOwnership Costs 7.0%Overhead Costs 5.0%Interest Costs (Purchased Feed & Cash Costs) 8.5%Table II. Income and Cost Assumptions In Budget Simulation.First-Calf Heifers Mature Cows(per cow unit) (per cow unit)Growing Season Grazing 4.0 AUM 8.16 AUMDormant Season Grazing 3.5 AUM 4.71 AUMHay 1.75 tons 0.75 tons32% Protein 320 lbs —Corn 11 bu —Salt and Mineral 40 lbs 60 lbsSteer Calf Weaning Weight 515 lbs 575 lbsHeifer Calf Weaning Weight 471 lbs 525 lbsLabor 9 hours 5.25 hoursIndex:  Farm ManagementBudgetingIssued September 2004Extension is a Division of the Institute of Agriculture and Natural Resources at the University of Nebraska–Lincoln cooperating with the Countiesand the United States Department of Agriculture.University of Nebraska–Lincoln Extension educational programs abide with the nondiscrimination policies of the University of Nebraska–Lincolnand the United States Department of Agriculture.© 2004, The Board of Regents of the University of Nebraska on behalf of the University of Nebraska–Lincoln Extension.  All rights reserved.

https://digitalcommons.unl.edu/cgi/viewcontent.cgi?article=1062&amp;context=ageconfacpub

Effects of Replacement Rate on Cow Herd Budget

Abstract

Similar works

Full text

Available Versions

UNL | Libraries

DigitalCommons@University of Nebraska