1	Alternative Cow Herd Investment Strategies John D. Lawrence Extension Livestock Economist Director, Iowa Beef Center Iowa State University
2	Motivation Cow herds are capital intensive enterprise Capital investment Long life span Initial investment for future earnings
3	Cattle Cycles Cash flow drives heifer retention When calves are cheap ranchers cannot afford to keep very many When calves are high they can afford to keep more Naively believe that today’s prices represent prices in the future
4	Are There Alternatives??? Model alternative heifer retention strategies for a hypothetical producer Not meant to represent any one operation Ignores weather and government Compare apples to apples
5	Heifer Retention Strategies Four alternative strategies Steady size Cash flow Dollar cost averaging Rolling average value Compare Herd size, returns, net worth
6	Heifer Retention Strategies Steady Size Keep same number of heifers each fall to maintain a steady herd size Cash Flow Sell/buy heifers or cows to maintain cash flow Annual cash flow equal to the Steady Size average cash flow
7	Heifer Retention Strategies Dollar Cost Averaging Keep same $ value of heifers each fall Annual investment is equal to the Steady Size average investment Fundamental economics Buy low – Sell high Do the opposite of everyone else
8	Heifer Retention Strategies Rolling Average Value Same principle as DCA Keep a 10 year average value of heifers each fall Annual investment is equal to the 10 year average value of SS number
9	Also Note Bred heifers are added to the herd at cost of weaned heifer plus cost to raise, not at market value. Priced in November Developed in the herd
10	Starting Herd January inventory Bred Cows 82 Bred 1st Calf Heifers 18 Beginning Virgin Heifers 21 Bulls 5
11	Methods 1970-2003 price data University budgets Reflect costs and weights Assumes AUs are rented as needed Adjusted for inflation Simulate the strategies
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22	Do You Need Flexibility? Fixed land base Buy stockers to add fully stock pastures and adjust cowherd Buy April, Sell September 200 pounds of gain Value added less $25
23	Fixed Land Base and Stockers
24	Heifer Retention Summary Steady size had more stable returns Value strategies work with the cycle Higher average returns Higher net worth growth Cash flow strategy feeds the cycle Low returns Smaller herd
25	Heifer Retention Summary Results robust with fixed land base using stockers or buying feed Results driven by net returns Sell more cattle at higher prices Lower cost of replacements
26	How to Implement Flexibility is helpful Able to rent grass by the AU Fill in with stocker cattle Cash reserves for tough times Choose an investment amount Long run average value Stick to the plan Adjust with the cycle if needed