Net Present Value of Replacement Females ?

Help Support CattleToday:

OP
S

Stocker Steve

Well-known member
Joined
May 2, 2005
Messages
10,780
Reaction score
326
Location
Central Minnesota
Noble Foundation published a bred vs. open heifer comparison a while ago. As I recall: with the open you did not get a 179 tax benefit, had to wait much longer for calf income, and some opens did not settle - - so the open heifer value was much lower.
 

talltimber

Well-known member
Joined
Apr 16, 2014
Messages
1,340
Reaction score
1
Location
Southeast Missouri
SS, I enjoy reading your posts, as they are often interesting, although I sometimes don't know what your terms are referring to. Regarding this post, I don't see how you can use a calculator to determine what breeding stock is worth? Doesn't the market determine what the value is? If you are eyeing a set of heifers at the sale, for cheap, and someone there knows these heifers and has to have them, your calculator is worthless?
As far as opens vs breds, a guy would have to pick a point in time to compare each correct? Say open 11 mo (or whatever age) vs third stage bred (or whatever stage you would pick to compare)
 
OP
S

Stocker Steve

Well-known member
Joined
May 2, 2005
Messages
10,780
Reaction score
326
Location
Central Minnesota
Market determines price that day. Bred prices here were very variable last winter, with a range of about $400. Some one "had to have them" and I think they overpaid at times. We had "free" surplus hay here and that is part of what drove prices. Perhaps hay will be free again this year. ;-)

NPV calculates a value based by adding up the future net income and after "discounting" it to today. So $700 of calf income less $600 of costs one year from now with a 5% interest rate has a present value of (700-600) x (1-.05) = $95. If that heifer rebreds, then you do the same for year two. As you get farther out in time - - the value of the annual income usually compounds down just like a mortgage cost compounds up.

The challenge with the calculation is you need estimate costs and income in the FUTURE. So you need to anticipate things like the 10 to 14 year long cattle price cycle... If you bought a $3000 bred just before the commodity market started to decline you obviously did not do a future value calculation. You probably paid the market price because you felt good about calf prices the PREVIOUS year.
 

talltimber

Well-known member
Joined
Apr 16, 2014
Messages
1,340
Reaction score
1
Location
Southeast Missouri
Stocker Steve":2w5ld24t said:
Market determines price that day. Bred prices here were very variable last winter, with a range of about $400. Some one "had to have them" and I think they overpaid at times. We had "free" surplus hay here and that is part of what drove prices. Perhaps hay will be free again this year. ;-)

NPV calculates a value based by adding up the future net income and after "discounting" it to today. So $700 of calf income less $600 of costs one year from now with a 5% interest rate has a present value of (700-600) x (1-.05) = $95. If that heifer rebreds, then you do the same for year two. As you get farther out in time - - the value of the annual income usually compounds down just like a mortgage cost compounds up.

The challenge with the calculation is you need estimate costs and income in the FUTURE. So you need to anticipate things like the 10 to 14 year long cattle price cycle... If you bought a $3000 bred just before the commodity market started to decline you obviously did not do a future value calculation. You probably paid the market price because you felt good about calf prices the PREVIOUS year.

I calculated NPV and didn't know it then! I pulled some numbers out of my ass for future calf prices/cow maintenance costs/and how old I thought the cow should be productive. VIOLA! That's all you can really do right, for a source of numbers? You'd already, if not already, be a rich man being able to see the future. All we know is what they are selling for today, just another risk to endure. I don't think using an all time high calf price to base our purchase limit on is a smart move, but other than that, we're guessing. Things can turn so quickly. Someone farts in Europe and the wrong guy smells it, we're taking a calf price hit.
 
OP
S

Stocker Steve

Well-known member
Joined
May 2, 2005
Messages
10,780
Reaction score
326
Location
Central Minnesota
The devil is in the details. Many folks are not great accountants so they miss some costs entirely, and don't allow enough for death loss, depreciation, labor... I hired an accountant for a couple hours a month to help me do a better job.

Yes, there is risk in estimating planning prices. Futures don't seem to be a great help due to all the commodity momentum trading volume. You can get planning prices from places like Beef magazine, but to be honest they have not been good guessers lately. :(

Two of the things I appreciated better after looking at replacement NPVs is how much they can vary by region, and how much they can vary during the cattle cycle. I will be sorting the heifer pen again next week.
 

Latest posts

Top