February 27, 2006
COMMON COMPONENTS EXIST FOR CALCULATING A BULL’S PRICE
by: Wes Ishmael
Cattletoday.com
There’s good reason that bulls are ultimately worth exactly what someone is willing to pay for them, no more and no less. Fact is, calculating the true value of a particular bull is akin to bottling a blizzard, given the vagaries of predicting precisely the added performance a bull will pass along to his progeny, let alone assessing the value of that added performance at least 18 months down the road.
Randy Perry, a beef cattle specialist at the University of California Fresno, sums up the common bull appraisal approach as well as anyone can: “Most buyers have an idea of the type of quality they want to buy and will pay what it takes to get that quality.”
That means prices cow calf producers are receiving for calves, the availability of feed and a host of other production and marketing factors have as much to do with the price of bulls as bulls’ intrinsic value.
Sure, there are at least as many rules of thumb for calculating bull value as there are bull buyers. Some say a bull is worth four or five weaned steer calves or three yearlings. Others say a bull’s price should be equivalent to some number of bred heifers. Still others begin the process by calculating how many calves it will takes to buy a new pickup …the rules of thumb and variations on them are endless.
Over time, there have also been a fair number of attempts at making price calculations for bulls more sophisticated. For instance, a good decade ago, extension specialists at the University of Florida suggested that one way to begin assessing the economic differences between bulls and therefore price was to subtract the herd average weaning weight from that of the prospective sire, divide by two and divide by the heritability of weaning weight. The result is an estimate of the difference in weaning weight the bull should make to the calves he sires in a herd, relative to existing herd performance. Multiply that difference by the going rate of feeder calves and you have the potential economic value, again based solely on the impact of weaning weight.
For perspective, say your herd average weaning weight is 500 lb. Using the above formula, you’d calculate a bull with a 600 lb. weaning weight (in a breed with a heritability for weaning weight of 0.30) to serve up an increased average weaning weight in your herd of 15 lb. per calf sired. At 25 calves, that’s 375 lb. per year. If you use him four seasons, that’s 1,500 lb. Multiply that by the price of a 550 lb. calf and you’re talking at least $1,500 or so based on today’s market. That’s the added value of the bull in question, compared to one holding the herd average weaning weight steady.
Others have developed spreadsheets that account for the total cost of a bull, relative to predicted added returns, coming up with an estimated net cost per pregnancy as a benchmark to use for comparing potential bull purchases.
Any of these methods can have value. Ultimately, though, market fundamentals and the distance between bulls purchased today and their first calves marketed two years down the road means that cash in hand, hope in heart is still the most popular, and arguably, the most rational approach.
However producers tackle the challenge, Jason Cleere, an extension beef cattle specialist with Texas A&M University (TAMU) says, “I encourage producers to think about bulls more as an investment rather than as an expense. Think about what you can invest economically, relative to what that investment can return.”
In fact, Cleere developed an online spreadsheet that enables producers to quickly estimate the net cost of a bull including purchase price, interest and salvage value along with the predicted value of additional weaning weight the bull might deliver (
http://etbeeftamu.edu {go to Beef Cattle Information, then to Genetics and look for “Bull Power”}).
After all, whether calves are sold at weaning time or are retained through a stocker phase and then the feedlot, pounds still drive returns as much or more than the actual selling price.
That’s why buyers reward and discount feeder calves on weight potential as much as anything. For instance, in 2001 University of Arkansas extension specialists evaluated auction receipts in the state to determine value factors and impact. In that study, compared to Muscle Score (MS) 1 calves, buyers discounted MS 2 $4.72/cm.; MS 3 $13.40/ cwt.; and MS 4 $22.65/cwt. Similarly, using USDA Frame Score grades, relative to USDA Large, buyers discounted Medium $0.96/cm. and Small $19.53/cwt.