Herd Bull Economic Decision Aids – First Draft
The purpose of these decision aids is to calculate the bull production cost, owner
cost of purchased herd bulls and calculate the economics of leasing bulls. The leasing
analysis evaluates the economics of owing versus leasing bulls when premiums are paid
for leased bull sired calves in a buy back program. This would be a supply chain where
the supplier of the bulls would provide the bulls and buy back the calves sired by the
bulls.
1. Bull investment – annual bull and per cow cost calculator.
2. Sales bull cost of production – weaning through sales and culling.
3. Bull leasing investment – annual bull cost and lease cost calculator.
4. Annual bull cost compared to lease cost with premium for calves.
These decision aids is to help producers put the “bull investment” and leasing into
proper cost and production perspectives. Annual cost is calculated in terms of the number
of cows serviced and what change would be required in weaning weight to pay for the
higher priced bull. Also calculated is the cost per calf and per cwt. of calf weaned per
cow exposed. This provides incite into what the market would have to pay to justify
paying more for a herd bull that could produce a more market acceptable calf that will
earn a premium in the market. Sires that produce premium calves are worth more as an
investment or can demand a higher purchase or lease.
Purchasing herd bulls is an investment that is expected to pay out over a 3 to 5
year productive life. The ownership costs (depreciation, death loss and interest cost)
should be expressed as an annual cost spread over females serviced and calves produced
during the bull’s productive life. Depreciation is the purchased cost minus salvage value.
Salvage value or cull bull net sales value when the bull is culled is a substantial porting of
bull purchase cost it reduces the bull depreciation cost. This depreciation will differ from
Internal Revenue Service (IRS) depreciation that has a five year life and zero salvage
value. Or the bulls are depreciated in the year of purchase using IRS Section 179.
The investment in a higher priced bull that can contribute to improved production
of more market acceptable calves and better weaning weight for the cow-calf producer.
The added investment is not that costly when numbers are put into perspective for calves
sired. The bull is an investment with a long-term pay out rather than just a cash expense.
The impact on the replacement heifers and bull selection is not addressed in this
decision aid. Market pricing is not necessarily a correct predictor of potential genetic
performance. Selection involves more than bull market price considerations.
Production Cost of Bulls
To have a better appreciation on the production cost of herd bulls a spreadsheet
facilitates the calculation of herd bull between the costs of a weaned calf to a yearling
sale. The calculations take into account culling losses as the bulls go through the growing
and fertility testing and marketing process.
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*Prepared by: James M. McGrann, Professor Emeritus, and Texas A&M University 8-9-08
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Leasing Bulls
There are a number of seedstock producers that have created a leasing bull
business. This activity has two sides the leaser and the lessee. What does it take to make a
bull leasing investor profitable? Under what lease rate will the leasing be more favorable
than owing herd bulls? A separate decision aid is set up to address each of these
questions. For the lessee the benefit of not have the bull outside the breeding season is
reflected in operating costs. The potential income from running another cow is not
considered.
Input Data
The key data for this decision aid is the bull investment or purchase cost,
estimated salvage value, and economic life. When combined with an interest cost on
capital these are the “ownership costs” of the bull investment. Once the bull is purchased
these are fixed costs and only vary with the salvage value of the bull and, of course, the
productive life. Annual operating costs include the labor and management, grazing, feed,
and veterinarian cost including the annual breeding soundness exam and bull productive
life insurance cost.
To calculate cost per cow the number of cows serviced per year needs to be input.
In order to evaluate the impact of number of cows and cost per cow, a sensitivity table is
included. Cost level is quite sensitive to the number of cows serviced and reinforces the
importance of the breeding soundness exam, good bull nutrition, and management. To
calculate change in weaned calf weight needed to pay for added costs, the weaned calf
crop and weaning weight must be input. Weaned calf weight per female exposed is
calculated. The final data item is the projected average market price of the weaned calves.
Leasing adds costs and there are pricing considerations. If a premium can be
achieved with a superior leased bull through the market or a calf buyback program
To quickly evaluate different variables change the values in the blue cells. It is
best to use a farm or ranch’s data in the decision aid. Feed and other operating costs are
critical numbers in the analysis. Veterinarians can provide good data on health programs
and costs. Getting good data for each of the decisions addressed will assist in
understanding the cost side if the herd bulls the most important investment for the beef
cattle herd.
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Recall this is an economic analysis with an opportunity cost of capital. Investors
will also want to do a cash flow analysis to complement this evaluation. Leasing creates
an annual cash expense where a purchase requires a large capital expenditure in the year
the bulls are purchased.
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