Economic analysis highlights how much more Hereford and heterosis contribute to the bottom line of commercial cow-calf operations.
By Wes Ishmael, Guest Contributor, Valley Ag Voice
Using Hereford bulls rather than Angus bulls in commercial Angus herds significantly increases an operation’s net worth per cow and the average income generated per cow over time, according to an economic analysis conducted by the University of Tennessee (UT).
“The key reason is the value of maternal heterosis, in general terms, and the specific performance advantages inherent to the Hereford breed,” explains Charley Martinez, UT Extension livestock economist. “For instance, previous research conducted for the American Hereford Association (AHA) documented a 7% pregnancy advantage and a weaning weight advantage of 12.1 pounds for Hereford-sired commercial black baldies compared to Angus-sired commercial Angus calves. There are fewer open cows with the black baldy females each year, less cow depreciation and more calves to market. At the same time, direct heterosis adds weaning and yearling weight to each calf marketed.”
Martinez conducted the analysis for the AHA, utilizing previous AHA research documenting the performance of Hereford bulls compared to Angus bulls when used on Angus-based cowherds.
LESS COST — MORE RETURN
Overall, utilizing Hereford bulls resulted in $1,950 less replacement cost per cow per year and $97.80 less feed cost per cow per year.
Martinez also calculated differences in annual net income per cow and annual net worth per cow for herds of 30 head and herds of 500 head. For each herd size of the Hereford-sired and Angus-sired calves, the model uses random pools of performance data, cost data, expenses and income. Each model represents 500 simulations for each year of the 10 years. Next, Martinez evaluated the difference between the Hereford and Angus models for annual net farm income and net worth (see Analysis Results below).
“Cash is king. Producers always ask us about net farm income. That’s what determines their tax liability and cash reserves,” Martinez says. “Any decision that impacts cashflow has long-term effects. The decision to alter what you buy or not sell, for instance, has a short-run effect on a producer’s net farm income in a given year.”
Longer term, all of those decisions contribute to net worth over time.
“People who choose to run cattle on their land are choosing to utilize those resources to generate wealth into the future rather than using the same resources to invest in the stock market, as an example,” Martinez explains. “Take your three classic financial documents, the income statement, your cashflow statement and your balance sheet. They show your operation’s net worth, and a key part of that is current assets including cash on hand. That’s why cash is king from an accounting standpoint.”
ANALYSIS RESULTS
Net Farm Income1
- At the end of 10 years, breeding commercial Angus cows to a Hereford bull returns an average of $90 more per cow per year in a 500-cow herd, compared to breeding commercial Angus cows to an Angus bull.
- At the end of 10 years, breeding commercial Angus cows to a Hereford bull returns an average of $76 more per cow per year in a 30-cow herd, compared to breeding commercial Angus cows to an Angus bull.
- Net farm income is larger in the Angus-sired herds for the first two years as Hereford-sired herds retain more replacements, foregoing increased cash sales.
Net Worth2
- Across 10 years, breeding commercial Angus cows to a Hereford bull returns an average of $305 more per cow per year in a 500-cow herd, compared to breeding commercial Angus cows to an Angus bull.
- Across 10 years, breeding commercial Angus cows to a Hereford bull returns an average of $1,326 more per cow per year in a 30-cow herd, compared to breeding commercial Angus cows to an Angus bull. The significant difference in value, compared to the 500-head herd is because each single head contributes more relative value to the smaller herd.
Martinez emphasizes the magnitude of difference rather than the specific dollar amounts is the key take-away from the analysis since every operation is unique. For instance, the average income generated per cow was 21% more for the 30-head herds using Hereford bulls rather than Angus. It was 24% more in the 500-head herds.
“As a producer retains more black baldy females over time, the net impact of maternal heterosis is magnified. That’s what is driving the significant economic advantage over time,” Martinez says. “The bottom line is that with the rational assumptions made in these models, Hereford bulls returned significantly more average annual net income per cow per year and significantly more average annual net worth per cow per year than using Angus bulls in a commercial Angus herd over time.”
While economic advantages are similar for both herd sizes, Martinez notes, “There is added benefit for smaller herds in that they are able to achieve the economic gain although they lack the economies of scale typically associated with the larger herds.”
Martinez also calculated net present value associated with the decision to use Hereford rather than Angus bulls. “Whether it was the 30-head herd or the 500-head herd, using Herefords offered a three to one advantage,” he says.
CONTROL WHAT YOU CAN
The UT analysis also underscores the impact of management decisions over time and the value of managing for the longer term rather than year to year, according to Martinez.
“The bull someone buys is one of the most consequential decisions of a cattle operation,” Martinez says. “For the most part, we don’t have much control over what we get in terms of price, but what we can control is management and our inputs. We do have control over how we use everything in between to help with the variable costs, help with the fixed costs and help our bottom line.”
1Net farm income accounts for all receipts from sales and fixed and variable costs.
2Annual net worth utilizes operations’ income statement, cash flow statement and balance sheet.
Model Assumptions and Details
Ten-year models were developed for 30-cow and 500-cow commercial Angus herds utilizing a Hereford bull or an Angus bull. These models incorporated cattle-cycle effects on returns to enterprise cattle sales (premiums for black-hided animals) and fluctuating input prices (estimates taken from Food and Agricultural Policy Research Institute — FAPRI). Model results were compared to analyze impacts on an operation’s net worth and net farm income.
For each model, estimated acreage and management decisions were based on Structure, management Practices, and Production Costs of U.S. Beef Cow-Calf Farms, USDA (2023). Replacement percentages started at 15% and gradually increased to 35%.
