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.