Should you be retaining heifers this fall or trying to buy bred cows or bred heifers?
Ranchers typically cull 14 to 15 percent of their cows per year on the average during the price cycle. With cattle prices near or setting new records, retaining heifers for replacement purposes is a hard decision to make. But at some point, cows must be replaced by younger animals. What do we do when the price for heifer calves, bred cows and bred heifers reach record price levels?
Keep in mind that the cattle cycle can be broken into three phases: expansion, contraction and turn-around. Each phase has unique economic price relationships and profit opportunities, suggesting that optimum beef cow herd production strategy changes with the changing phases.
The key to developing a profitable heifer purchase or retention strategy lies in the price cycle. The 10-year cattle cycle causes 10-year beef price cycles. As cattle numbers go down, beef prices go up. Then, as cattle numbers go up, beef prices go down. We typically spend approximately five years building beef cow numbers for example, 1990 through 1995. We also typically spend approximately five years reducing cattle numbers for example, 1996 through 2000. But with the droughts the last three years in different areas of the country, this reduction phase has been extended through 2003-2004.
Cattle cycles are caused by the biology of the beef cow. Once a producer gets the price signal to expand (like in 2003), it takes three years (two years, if you buy bred heifers) from the time he holds back additional heifers to produce more calves until those calves are finally slaughtered as added beef.
So should you cull the same number of cows on the upward side of the price cycle as on the downward side? On the downward side of the beef price cycle, when beef cows are netting very little profit or are even losing money (as in 1994 through 1996), you should cull and cull deep. On the upward part of the beef price cycle (1999 through 2003), do not hold back any heifers for replacement and sell every calf born.
So what will the typical beef cow producer do? When the typical producer gets the price signal to expand, he will begin holding back additional heifers for his herd. The typical beef cow producer will wait to confirm the price signal with his 2002-03 calves, will hold back 2003 heifers, breed them in 2004 and calve them in 2005, 2006, 2007, 2008, 2009, etc. He may even hold back some 2004 heifers, breed them in 2005 and calve them in 2006, 2007, 2008, 2009, 2010, etc., right down the price-decreasing phase of the beef price cycle. Heifer retention in 2003 and 2004 will drive beef production down in 2003 and 2004, and beef production will finally start increasing in 2005 and 2006 and will continue increasing through 2009 or until a strong liquidation signal is received. This is the cause of the cattle cycle.
Due to the nature of the 10-year beef price cycle, heifers born during the low-price period of the cycle produce calves during the next high-price period. Heifers born during the high-price period produce calves during the next low-price period. Take, for example, the 1997 heifer calves. They were born in 1997, bred in 1998 and calve in 1999, 2000, 2001, 2002, 2003, etc., during the top of the calf price cycle.
If you are looking at expansion of your cow herd during this time period, be careful to consider the value of the calves produced over the life of the cow. When considering whether to buy bred cows or heifers, take into consideration the additional year of good prices the bred animal can take advantage of, potential tax benefits, the cost of retaining a heifer for two years before a calf is weaned and that we should have good prices for the next couple of years.