In the Cattle Markets
Take stock of decision aids associated with 'booming' calf market.
As stories about seemingly limitless demand for calves in several markets circulate and anticipation of the USDA-National Agricultural Statistics Service (NASS) Cattle Inventory Report (scheduled to be released Jan. 27) grows, it is useful to step back and take stock of available decision aids designed to practically address cattle producer decisions. For instance, many cattlemen find themselves (or their lenders) asking, "What can I afford to pay for a steer calf?" and, "What should I pay for replacement cows and heifers?"
This past fall, Kevin Dhuyvetter and I released a couple of directly related resources we hope are of use and value to the industry.
One "Value of Gain" fact sheet outlines available resources for producers interested in backgrounding calves. The examples and producer-friendly decision aids outlined in that fact sheet are certainly worth reading and use by producers currently bidding on calves aiming to background them over the coming months. Narrowly, it is important for producers to recognize the implied returns (or more accurately, the implied expected returns) associated with "bidding what it takes" to get calves in today's market.
Similarly, Dhuyvetter has developed a producer-friendly Excel-based decision tool that should be of high interest to cattlemen interested in expanding their herd by purchasing additional heifers or cows. This spreadsheet calculates the net present value (NPV) of beef replacement females at a given discount (interest) rate. Armed with knowledge of their own cost and production situation, producers can easily identify a desired return on investment and evaluate how the identified NPV of a replacement compares to current market prices to gain insight on the appeal of initiating a herd expansion plan.
While there certainly are a host of decision aids available to producers beyond the two highlighted here, perhaps the most important thing is to pause and think before one acts and "follows the herd" in today's interesting cattle markets and situation. Regardless of an operation's individual situation, producers would be well-served to make decisions with as much information as they can reasonably obtain — particularly when it is available for free, as are the examples here.
Editor's Note: Glynn Tonsor is assistant professor in the Department of Agricultural Economics at Kansas State University.
