Open Cows in the New Millennium

Farm Business Management Update, October 2000

By Jack Dunford

Nothing has changed. Open cows in the new millennium are just as unprofitable as they were in the last century. Two-year and five-year net income streams for four ways of dealing with open cows using the 1999-2000 Virginia Farm Management Livestock Budgets as a basis for estimating annual net revenues. The following assumptions were used in making the calculations:

• A spring calving cow herd
• A 525-pound calf marketed each year (a "blend" weight and price based on 50:50 steer-to-heifer ratio and retaining 15 percent of the heifers for replacements)
• All out-of-pocket expenses based on estimates in the Virginia Farm Management Livestock Budgets
• Fifteen percent federal tax bracket and 5.75 percent Virginia tax bracket
• All costs and prices held constant;
• Labor costs are not included.

Table 1 includes the net income streams for the following five scenarios:

1. The cow drops a healthy calf each year;
2. The cow is discovered open and the decision is made to rebreed her to calf in the spring of the following year (skip a year);
3. The cow is discovered open, and she is re-bred to calf with the fall calving group;
4. The open cow is sold and immediately replaced with a purchased cow or heifer bred to drop a calf that spring; and
5. The open cow is sold and not replaced.

In each case, the income and expenses are the same for the first year (200X (Table 1)). This is a spring calving herd; all the scenarios assume a calf born and marketed the first year, but upon examination the cow is found to be open sometime later that year.

Alternative #1 (cow calves annually) is the goal and standard by which all the other scenarios are measured. An estimated annual return of $128 or a total of $640 of net income is generated over a five-year period. Alternative #2, letting the cow skip a year, is a costly decision resulting in a five-year net income of $273. In larger herds with two calving groups, Alternative #3 may be feasible. The open cow is re-bred, shifted to the other group and only loses 4-6 months of productivity. This scenario results in a $285, five-year net income, but at the end of this five-year analysis, the cow has a 200-pound calf since the calf will not be marketed until the sixth year.

In all the other scenarios, the calf is born in the spring, sold that fall, and the cow is dry going into the sixth year. Alternative #4, selling the open cow and buying a bred replacement, preserves the annual $128 net income stream, but there is a net after-tax cost of $436 in 200X is associated with buying the replacement. The net five-year income is $204 with the possible bonus of a younger, more productive cow if a quality-bred heifer is purchased to replace the open cow. Also an option is Alternative # 5: sell the cow without replacing her. In this case the two-year and five-year net inflows look respectable, but the income-producing property has been sold and no future income is available from that cow unit.

Summary

Any alternative to having a cow that produces a calf every year is a costly option. Not replacing the open cow or letting her skip a year are not viable alternatives for those in the cattle business for the long haul. Alternatives #3 and #4 will minimize losses for producers in the position to consider either choice - moving the cow to another calving group or replacing her with a purchased female.

These estimates may not reflect actual income and expenses on many farms, but they do represent a logical procedure Virginia cattle producers and their advisors can use in making this critical management decision. As feeder cattle prices will certainly begin to weaken in the next few years, cattle producers must closely monitor their open cow situation and be ready to make decisions that will help them remain competitive in the cattle industry.

Table 1: The Economics of Management Strategies Related to Open Cows in Virginia Beef Herds

Management Strategies	1	2	3	4	5
	Cow Calves Annually	Open Cow rebreed for next spring	Open Cow, Rebreed and move to fall group	Sell Open Cow Buy Bred Heifer	Sell Open Cow Don't Replace
200X Income Expenses Net	$367 $239 $128	$367 $239 $128	$367 $239 $128	$367 $239 $128	$367 $239 $128
200Y Income Expense Net	$367 $239 $128	$0 $239 ($239)	$0 $227 ($227)	$367 $239 $128	$0 $0 $0
Capital Transaction 200X Sell Open Cow Buy Bred Heifer Net Tax Benefit/Cost Net After Tax	N/A	N/A	N/A	$425 $975 ($550) $114 ($436)	$425 $ 0 $425 ($88) $337
Net Income Summary 2-Year Net Income 5-Year Net Income Value of cow in 5 years	$256 $640 $480	($111) $273 $480	($ 99) $285 $6702	($180)1 $204 $5253	$4651 $465 $0
Total Economic Benefit After Five Years	$1,120	$753	$955	$729	$465

¹ Includes capital transactions in 200X.
² Includes value of a 200 pound calf in inventory end of year five.
³ Younger cow may have higher residual value.

Contact the author at dunford@vt.edu .

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