Source: Glynn T. Tonsor, Assistant Professor, Department of Agricultural Economics, Kansas State University
As stories about "seemingly limitless demand" for calves in several markets circulate and anticipation of the USDA-NASS Cattle Inventory report (scheduled to be released on January 27) grows, it is useful to step back and take stock of available decision aides designed to practically address cattle producer decisions. For instance, many cattlemen find themselves (or their lenders) asking "what can I afford to pay for a steer calf?" and "what should I pay for replacement cows and heifers?" This past fall, Dr. Kevin Dhuyvetter and I released a couple directly related resources we hope are of use and value to the industry.
One "Value of Gain" fact sheet outlines available resources for producers interested in backgrounding calves. The examples and producer-friendly decision aides outlined in that fact sheet are certainly worth reading and use by producers currently bidding on calves aiming to background over coming months. Narrowly, it is important for producers to recognize the implied returns (or more accurately, the implied expected returns) associated with "bidding what it takes" to get calves in today's market.
Similarly, Dr. Dhuyvetter has produced a producer-friendly Excel based decision tool which should be of high interest to cattlemen interested in possibly expanding their herd by purchasing additional heifers or cows. This spreadsheet calculates the net present value (NPV) of beef replacement females at a given discount (interest) rate. Armed with knowledge of their own cost and production situation, producers can easily identify a desired return on investment and evaluate how the identified NPV of a replacement compares to current market prices to gain insight on the appeal of initiating a herd expansion plan.
While there certainly are a host of decision aides available to producers beyond the two highlighted here, perhaps the most important thing is to "pause and think" before one acts and "follows the herd" in today's interesting cattle markets and situation. Regardless of an operation's individual situation, all producers would be well-served to make decisions with as much information as they can reasonable obtain - particularly when it is available "for free" such as those used as examples here.
Fed cattle prices for last week were slightly lower trading at nearly $121/cwt on a live weight basis and just under $197/cwt on a dressed basis. Nebraska yearlings traded slightly higher at nearly $152/cwt while Nebraska calves were up 6% for the week trading over $184/cwt. Corn prices were up slightly for the week while DDGS prices fell to $223/ton.
 This fact sheet is freely available at: http://www.agmanager.info/livestock/budgets/production/beef/Value-of-Gain_FactSheet_AM-GTT_2011.pdf
 This Excel file is named "KSU-Beef Replacements" and is available at: http://www.agmanager.info/livestock/budgets/production/default.asp