There's no doubt the prices for cattle have been a major talking point in the last two months. The average sale yard price for cattle of all descriptions are significantly higher than the average over the past 36 months. In some cases records are being broken and many people are struggling to remember if prices have ever been so high.
With this strong market, I've received a lot of requests from people wanting to buy and sell cattle, as well as people looking to understand the industry a little better, to advise them on what an animal is worth.
In the case of commercial animals, I rely on the NLRS market reports, that are available online every day. These are the reports you hear on the ABC Country Hour or read in your weekly rural papers. I reckon these reports are the most useful guide on current market prices, and when we are looking at cattle in a paddock, its the best option to work out a value.
But how do you put a value, or budget on buying new breeding stock such as a new bull or some new cows?
There's lots of people who have an opinion on what a new bull should cost you. As you can imagine the range in opinions is pretty broad! I had some comments on the RaynerAg Facebook page on this topic, with suggestions about buying from smaller studs where the price will be lower, through to the importance of recognising the value of long term genetic improvement.
So how do you value the cost of a bull?
Well there are a few things to consider. The first thing is you are investing in an animal that will have an influence on three generations of your herd. So you need to recognise that you are buying an animal that offers value over a long time.
More importantly, the traits or genetics that bull has, may allow you to produce more kilograms of beef more quickly, or hit your market specifications more efficiently. These improvements in your herd can earn you more, so spending on genetics might well be justified.
I reckon there are some things to think about when determining your spending limit. Firstly how many cows will your bull be joined to in his working life? Unfortunately the average working life of bulls is only around 3.5 years. Many bulls seem to break down physically after this time. This means if you want a bull to have a longer working life, you need to focus on structural soundness as much as on genetic potential.
How many cows will your bull be joined to? On average most producers join bulls at a rate of 3% to their cow groups. Some bulls get slightly higher numbers, but this is pretty much a common joining rate in southern Australia (NSW, Vic, SA, Tas and southern WA). From that we can work out that a bull will probably sire 30 calves a year for 3.5 years. Which means an average bull may sire about 105 calves in his working life.
According to Beef Central, the average price for a bull across all breeds in 2014 was $4639. on current market prices, the salvage value of a bull, that is what it is worth at the end of his working life is around $1500. From this we can work out that the bull is actually worth about $3,139. From this, you can work out the value of every each calf he sires. In this example the cost per calf will be $29.89
If that is the cost of an average calf, then why would you spend more? It now comes back to how much you want to improve your performance. Not every bull is average! Some bulls will grow faster, be leaner or fatter at the same stage of growth, some have better temperament and some have more muscle.
Genetic differences are the key to how productive your herd is. Finding a bull with the genetic potential to move your herd can now be budgeted.
It might be that if you can produce calves that will grow slightly faster than the average, you could turn your steer progeny off 3 weeks earlier. This earlier turn off might allow you to capture a higher market return, and the extra value on those steers justifies spending more than the average on a new bull.
I reckon the challenge in determining how much it costs to buy cattle, isn't about the round figure sale price everyone likes to quote. Instead I reckon its about working out:
how much your calves cost you?
can better genetics help you achieve your target more efficiently?
is there a financial advantage to be had - either in the paddock or at sale time?
If you can answer those questions then I reckon you can work out the price you can afford to spend on bulls. And if you don't really know how to start answering those questions, I reckon you should give me a call and I'll help you come up with some results to take you forward.