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COMMON COMPONENTS EXIST FOR CALCULATING A BULL'S PRICE

by: Wes Ishmael

There's good reason that bulls are ultimately worth exactly what someone is willing to pay for them, no more and no less. Fact is, calculating the true value of a particular bull is akin to bottling a blizzard, given the vagaries of predicting precisely the added performance a bull will pass along to his progeny, let alone assessing the value of that added performance at least 18 months down the road.

Randy Perry, a beef cattle specialist at the University of California Fresno, sums up the common bull appraisal approach as well as anyone can: "Most buyers have an idea of the type of quality they want to buy and will pay what it takes to get that quality."

That means prices cow calf producers are receiving for calves, the availability of feed and a host of other production and marketing factors have as much to do with the price of bulls as bulls' intrinsic value.

Sure, there are at least as many rules of thumb for calculating bull value as there are bull buyers. Some say a bull is worth four or five weaned steer calves or three yearlings. Others say a bull's price should be equivalent to some number of bred heifers. Still others begin the process by calculating how many calves it will takes to buy a new pickup ...the rules of thumb and variations on them are endless.

Over time, there have also been a fair number of attempts at making price calculations for bulls more sophisticated. For instance, a good decade ago, extension specialists at the University of Florida suggested that one way to begin assessing the economic differences between bulls and therefore price was to subtract the herd average weaning weight from that of the prospective sire, divide by two and divide by the heritability of weaning weight. The result is an estimate of the difference in weaning weight the bull should make to the calves he sires in a herd, relative to existing herd performance. Multiply that difference by the going rate of feeder calves and you have the potential economic value, again based solely on the impact of weaning weight.

For perspective, say your herd average weaning weight is 500 lb. Using the above formula, you'd calculate a bull with a 600 lb. weaning weight (in a breed with a heritability for weaning weight of 0.30) to serve up an increased average weaning weight in your herd of 15 lb. per calf sired. At 25 calves, that's 375 lb. per year. If you use him four seasons, that's 1,500 lb. Multiply that by the price of a 550 lb. calf and you're talking at least $1,500 or so based on today's market. That's the added value of the bull in question, compared to one holding the herd average weaning weight steady.

Others have developed spreadsheets that account for the total cost of a bull, relative to predicted added returns, coming up with an estimated net cost per pregnancy as a benchmark to use for comparing potential bull purchases.

Any of these methods can have value. Ultimately, though, market fundamentals and the distance between bulls purchased today and their first calves marketed two years down the road means that cash in hand, hope in heart is still the most popular, and arguably, the most rational approach.

However producers tackle the challenge, Jason Cleere, an extension beef cattle specialist with Texas A&M University (TAMU) says, "I encourage producers to think about bulls more as an investment rather than as an expense. Think about what you can invest economically, relative to what that investment can return."

In fact, Cleere developed an online spreadsheet that enables producers to quickly estimate the net cost of a bull including purchase price, interest and salvage value along with the predicted value of additional weaning weight the bull might deliver (http://etbeeftamu.edu {go to Beef Cattle Information, then to Genetics and look for "Bull Power"}).

After all, whether calves are sold at weaning time or are retained through a stocker phase and then the feedlot, pounds still drive returns as much or more than the actual selling price.

That's why buyers reward and discount feeder calves on weight potential as much as anything. For instance, in 2001 University of Arkansas extension specialists evaluated auction receipts in the state to determine value factors and impact. In that study, compared to Muscle Score (MS) 1 calves, buyers discounted MS 2 $4.72/cm.; MS 3 $13.40/ cwt.; and MS 4 $22.65/cwt. Similarly, using USDA Frame Score grades, relative to USDA Large, buyers discounted Medium $0.96/cm. and Small $19.53/cwt.

Back that into the bull auction ring and it's no surprise that all else being equal, buyers pay more for the potential of increased weight performance, especially through weaning.

As an example, in a 1993 study conducted at Kansas State University (KSU), researchers found that adjusted weaning weight was a significant price factor for bulls of all breeds that made up seven percent or more of the study population. The study included 1,651 bulls marketed in 26 different purebred sales within the state. Sales represented Simmental, Angus, Charolais, Hereford, Red Angus, Gelbvieh and Limousin. Prices ranged from $650 to $20,000. Interestingly, after adjusting for all other attributes -- including actual, adjusted and EPD weight performance, age, color and conformation scores -- there were no significant differences between the breeds when it came to price.

Consequently, both Cleere and Perry believe visual appraisal remains the primary selection tool used by producers. After all, trained eyes can assess frame and muscle that contribute to weight, along with overall conformation and structural correctness. Unfortunately, the best eyes blinking can't see beneath the hide to gauge ribeye size, marbling ability or milk, nor can they accurately assess a bull's growth curve.

"We know how valuable Expected Progeny Differences (EPDs) are in selection, vet producers still seem unsure of the predictive ability they offer, and many still don't understand how to read and use them," says Cleere. "You've got to use all of the tools. You can't buy a bull only on the basis of EPDs, because we still sell cattle visually."

Conversely, Cleere explains using only visual appraisal to select bulls is an invitation to select less accurately than possible when other tools such as adjusted weights, EPDs and ultrasound are added to the mix.

While Perry doesn't see the majority of buyers basing their decisions mainly on non visual data, he believes these extra tools have become the cost of admission to selling bulls. "I think producers today are doing a better job selecting bulls than they ever have," explains Perry. "It's getting harder to market bulls that don't have any performance information. In general, producers in this part of the world have definitely accepted EPDs and adequately understand them. Along with ultrasound data and other information, buyers here have been willing to vary the value of bulls in accordance with how good the information is."

Paradoxically, the growing flood of information seedstock suppliers are making available to buyers in order to make more accurate selection decisions at times adds to the confusion. Consequently, Perry points out a growing number of breeds and breeders are developing indexes that incorporate multiple values into fewer numbers that can be used for comparison.

Distrust and confusion about performance evaluation tools may be one reason there seems to be a growing gap in the value of bulls. On the top end, especially with the steamy calf markets of recent years, some commercial buyers are spending in excess of $4,000 per head for bulls. At the other extreme, there continue to be folks looking for cow fresheners rather than breeding bulls.

"One thing I continue to see are producers who do a really good job on their cows, but then they'll just go out and buy a serviceable bull," says Cleere. "I have seen producers spend $1,100 $1,200 for F1 heifers, then they won't spend more than that on a bull." Which is, of course, a lot like bleeding equity from the cow factory. As Cleere points out, for an operation keeping replacement females, a single bull will impact the quality of the cow herd for the next 10 12 years. And, the reality is that even folks who plan to market all of the heifers from a bull can be tempted to do otherwise when a heifer looks the part or an unexpected surplus of grass calls for more numbers.

Besides, Cleere points out there are plenty of ways to dilute the purchase cost of a bull through management. For example, the cheapest bull in America becomes a pricey bauble if it's turned out to pasture without a breeding soundness examination and fails to breed any cows.

Likewise, the economic punch that comes with introducing and managing heterosis which includes selecting complimentary breeds for the cross should be considered on the return side of the bull balance sheet.

"You have to match the cow to the environment, then select bulls to put on cows that will produce calves that fit your market, whatever that market is," believes Cleere. When that happens, he says, "It's amazing how much incremental improvement can return. Spending an extra $500 or $1,000 on a bull can return much more through added performance in the calves." Of course, that assumes selecting a bull that adds to the equation without increasing production costs in some other area.

      Tough as it is to ferret out a specific value at any point in history, Cleere emphasizes, "The biggest mistake I believe cow calf producers can make is not investing in a good bull."

(Reprinted with permission from the March 2005 Charolais Journal.

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