Net Present Value of Replacement Females ?

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Stocker Steve
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Net Present Value of Replacement Females ?

Postby Stocker Steve » Mon Mar 27, 2017 1:04 pm

Have you had success using any of the on line NPV calculators? Iowa State and K State have offered some.
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Re: Net Present Value of Replacement Females ?

Postby RanchMan90 » Mon Mar 27, 2017 2:10 pm

Calculator looks handy. Hard to see the value in breeding age replacement heifers at the same price as breds.
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Re: Net Present Value of Replacement Females ?

Postby Stocker Steve » Mon Mar 27, 2017 2:34 pm

Noble Foundation published a bred vs. open heifer comparison a while ago. As I recall: with the open you did not get a 179 tax benefit, had to wait much longer for calf income, and some opens did not settle - - so the open heifer value was much lower.
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Re: Net Present Value of Replacement Females ?

Postby talltimber » Tue Mar 28, 2017 6:05 am

SS, I enjoy reading your posts, as they are often interesting, although I sometimes don't know what your terms are referring to. Regarding this post, I don't see how you can use a calculator to determine what breeding stock is worth? Doesn't the market determine what the value is? If you are eyeing a set of heifers at the sale, for cheap, and someone there knows these heifers and has to have them, your calculator is worthless?
As far as opens vs breds, a guy would have to pick a point in time to compare each correct? Say open 11 mo (or whatever age) vs third stage bred (or whatever stage you would pick to compare)
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Re: Net Present Value of Replacement Females ?

Postby Stocker Steve » Tue Mar 28, 2017 7:01 am

Market determines price that day. Bred prices here were very variable last winter, with a range of about $400. Some one "had to have them" and I think they overpaid at times. We had "free" surplus hay here and that is part of what drove prices. Perhaps hay will be free again this year. ;-)

NPV calculates a value based by adding up the future net income and after "discounting" it to today. So $700 of calf income less $600 of costs one year from now with a 5% interest rate has a present value of (700-600) x (1-.05) = $95. If that heifer rebreds, then you do the same for year two. As you get farther out in time - - the value of the annual income usually compounds down just like a mortgage cost compounds up.

The challenge with the calculation is you need estimate costs and income in the FUTURE. So you need to anticipate things like the 10 to 14 year long cattle price cycle... If you bought a $3000 bred just before the commodity market started to decline you obviously did not do a future value calculation. You probably paid the market price because you felt good about calf prices the PREVIOUS year.
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Re: Net Present Value of Replacement Females ?

Postby WalnutCrest » Tue Mar 28, 2017 9:36 am

It's hard to drive through life looking out the back window.
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Re: Net Present Value of Replacement Females ?

Postby Nesikep » Tue Mar 28, 2017 11:22 pm

WalnutCrest wrote:It's hard to drive through life looking out the back window.

Can't see nothin' out the front window either though!
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Re: Net Present Value of Replacement Females ?

Postby talltimber » Wed Mar 29, 2017 5:16 am

Stocker Steve wrote:Market determines price that day. Bred prices here were very variable last winter, with a range of about $400. Some one "had to have them" and I think they overpaid at times. We had "free" surplus hay here and that is part of what drove prices. Perhaps hay will be free again this year. ;-)

NPV calculates a value based by adding up the future net income and after "discounting" it to today. So $700 of calf income less $600 of costs one year from now with a 5% interest rate has a present value of (700-600) x (1-.05) = $95. If that heifer rebreds, then you do the same for year two. As you get farther out in time - - the value of the annual income usually compounds down just like a mortgage cost compounds up.

The challenge with the calculation is you need estimate costs and income in the FUTURE. So you need to anticipate things like the 10 to 14 year long cattle price cycle... If you bought a $3000 bred just before the commodity market started to decline you obviously did not do a future value calculation. You probably paid the market price because you felt good about calf prices the PREVIOUS year.


I calculated NPV and didn't know it then! I pulled some numbers out of my be nice for future calf prices/cow maintenance costs/and how old I thought the cow should be productive. VIOLA! That's all you can really do right, for a source of numbers? You'd already, if not already, be a rich man being able to see the future. All we know is what they are selling for today, just another risk to endure. I don't think using an all time high calf price to base our purchase limit on is a smart move, but other than that, we're guessing. Things can turn so quickly. Someone farts in Europe and the wrong guy smells it, we're taking a calf price hit.
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Re: Net Present Value of Replacement Females ?

Postby Stocker Steve » Wed Mar 29, 2017 8:29 am

The devil is in the details. Many folks are not great accountants so they miss some costs entirely, and don't allow enough for death loss, depreciation, labor... I hired an accountant for a couple hours a month to help me do a better job.

Yes, there is risk in estimating planning prices. Futures don't seem to be a great help due to all the commodity momentum trading volume. You can get planning prices from places like Beef magazine, but to be honest they have not been good guessers lately. :(

Two of the things I appreciated better after looking at replacement NPVs is how much they can vary by region, and how much they can vary during the cattle cycle. I will be sorting the heifer pen again next week.
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Re: Net Present Value of Replacement Females ?

Postby js1234 » Sun Apr 16, 2017 12:12 am

Link them if you could. I'd like to play with it.
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