How Does Value of Gain Affect What You Can Pay for a Bull?
The price of corn in late 2007 is in the $3+ range, with little evidence that it might go down. Therefore, if live cattle prices stay near current levels, producers can expect the value of gain to stay near the current level of $.90-$1/cwt.
How does this increase in value of gain affect the investment potential of a bull purchase? When bull purchases are made each year, there are a number of factors to consider, many of them falling under the broad headings of genotype (the bull's genetic background) and phenotype (the bull's physical characteristics). You must do your homework analyzing a potential bull's genotype and phenotype to be sure that they complement your cow herd and will help produce uniform calves (both color and type). Then, ask yourself what attributes you want in the next calf crop. Desired characteristics may include calf performance after weaning or potential gain at the feedlot. Each additional attribute costs more money, so if you aren't willing to take advantage of these attributes, then the investment is wasted.
Once you know what you want (or need), then you have to decide how much you can pay. This decision cannot be made in isolation - you have to look at potential returns on this investment. Consider these three bull investment scenarios:
- Bull No.1 is a typical bull out of the sale barn, only used to get the cows pregnant;
- Bull No. 2 is available from a neighbor, is of known parentage and has individual animal performance figures available; and
- Bull No. 3 is from a reputable breeder, has documented genetics, and has individual performance information and EPDs available.
If we use the following assumptions, our total annual economic bull costs would be the highlighted number in Figure 1.
You can see from the analysis that the difference between Bull No. 1 and Bull No. 2 is $6.57/cow, which for a 550-lb. calf is $1.11/cwt. There is a $19.76/cwt. difference between Bull No. 1 and Bull No. 3, which $3.60/cwt for a 550-lb. calf. The performance assumptions in Figure 2 show how this investment could affect an operation. These assumptions demonstrate potential performance differences in subsequent calf crops when purchasing more expensive bulls with known background information and pedigree.
While not every operation will receive an increase in performance as projected above, we have observed operations that have improved their performance more than the shown examples. With the value of gain at present levels, relatively small differences in marginal costs can create significant differences in marginal returns. When you consider the performance differences between bulls, the marginal cost on a per calf basis is low and the potential marginal return could be significant.