The cattle cycle has turned around, calf prices are on the rise and it appears that the cattle business will return to profitable levels. Should I start thinking about rebuilding my herd? Is it time to buy replacement females?

Now may be an excellent time to buy heifers. Why? As profits go up in the cattle business, so will the price of good quality replacement heifers. Replacement heifers will be more expensive later on. The level of increase in the price of quality replacement heifers will closely follow the rise in calf prices (Figure 1). And, as the cattle industry becomes more profitable over the next few years the price of replacement heifers will be bid up. Consequentially, the best time to buy replacement heifers is at the bottom of the cattle cycle. The worst time to buy replacement heifers is when cattle prices are at their highest point.

The value of the replacement heifer to "your cattle operation" is directly related to the value of the calves that the heifer will produce. This is why it is important to consider buying replacement heifers now instead of waiting. If you don't have many dollars in the heifer and she is producing during the up swing of the cattle cycle she will generate a higher level of return than if you bought her when cattle prices were high and ran her through the end of the cattle cycle.

What can you pay for this heifer? The value of the heifer to your herd's profit generating ability should be greater than what she will cost. The greater the difference between the dollars she will produce for you and what it takes to buy the heifer, the greater value this heifer will have in your herd.

The actual dollar value of the heifer is based on the sum of the values of all her future calves plus her cull market value. Economists would say, "her value would be the discounted net returns of her calves expressed in today's dollars." A key point to get from this statement is that we are talking about her value to your herd and not today's sale barn price for heifers. The current sale barn price is frequently based just on today's sale price of calves and may not have anything to do with the heifer's real future value.

There are five factors to consider in determining the heifer's value in your herd. First, you need to estimate the expected life of the heifer under your herd conditions. Will she normally stay in your herd for 2, 4, 6, 8, etc., calving seasons? Second, you need to develop a budget--estimating the costs and potential revenues for every year she would be in your herd. Third, you need to project a salvage price for the heifer at the end of her productive herd life. Fourth, you need to estimate an appropriate interest rate to calculate the time value of money. Finally, you need to do the math and estimate the value of the bred heifer in your herd.

I have calculated some estimates of a replacement heifer's worth to a Carolina cattle producer based upon Clemson University beef cattle budgets and state average annual calf prices as reported by USDA's Agricultural Market News Service. We need to make some additional assumptions to help clarify the heifer's environment in our typical Carolina

herd. Let's assume that our heifer will calve near age two and she will stay in the herd for six calving seasons on average. Her average calf's weaning weight is 500 pounds. Out-of-pocket cost for carrying this animal through the first year is $208 (based on Clemson budgets). These costs are assumed to increase by 2 percent each year over the tenure of the animal in the herd. We don't have a crystal ball to predict calf prices over this planning time frame but feel that the average price over the last few years would be a good estimate for predicting future calf prices. And finally, salvage value of the cow is estimated to be $440 (1100 lbs. X $.40 per lb.). Our discount rate for the time value of money calculation is 9 percent, determined by an interest rate charged by the local bank.

Given these assumptions, this heifer is worth $936 (Table 1: 6th year now and 500 lb. column) to our cattle operation. This is based on the predictions that the heifer would stay in the herd for six calving seasons and average 500 pound calves. We can pay up to $936 and break even for this heifer. In other words, the income from her calves over her life in the herd would be equal to $936. If we paid less than $936 for her, our returns would be larger. If we exceeded the $936 purchase price limit, our returns would be negative.

Table 1. Estimated Replacement Heifer Values
Calving Season	Weight of Calf
	400 lb.	500 lb.	600 lb.
Purchase Year*	$232.00	$232.00	$232.00
1st Year	337.06	377.73	423.76
2nd Year	432.65	509.03	596.85
3rd Year	519.92	628.99	755.05
4th Year	602.82	742.03	903.36
5th Year	676.56	843.37	1036.98
6th Year	744.49	936.59	1159.80
7th Year	807.24	1022.57	1272.94
8th Year	865.35	1102.04	1377.40
Average value for each weight group is ($ Price x wt. - cost of production)

* Assumes animal is sold at end of year, i.e., ( $440 - $208 = $232 )

A heifer's value varies based upon several important factors. Two factors are especially worth mentioning. First, the calf's weaning weight. In most cases, the heifer who produces an additional 100 lbs. of calf per year will add appreciably to the cattle producer's net return. If the replacement heifer produces calves that weigh 400 pounds instead of 500 pounds, her worth would be $744, in year 6, or a difference of $192. A 600-pound calf average would be worth $1,160. Again, this is an "upper limit." If you paid more than this amount, you would be losing money on the investment in the heifer. You would add to your returns if the heifer could be purchased for less than this amount.

Second, if you look at Table 1 carefully, you will see that the value of the heifer varies dramatically based on the assumptions you make about her productive life. The longer the heifer remains a productive animal in the herd the greater the returns to the cattle producer. If our example heifer would stay in the herd one additional year (seven calving seasons vs. six), her value increases to $1,022 from $936.

It is readily apparent that the cattle producer can pay more for a better heifer. An animal that will improve weaning weights or stay in the herd longer as a productive unit is worth more to the cattle producer. When you evaluate your cattle operation this year and think about expanding, take the time to analyze what a heifer will do for your herd. Good heifers, at this stage of the new cattle cycle are probably worth considerably more than you will need to pay for them--- poor quality heifers are always expensive and will never pay for themselves.

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updated 2/4/98