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Abstract

Selecting replacement females for the cowherd is a challenging economic decision. Producers have two options for replacing cull cows: purchasing or raising the replacement heifers. Both approaches require a long-run planning horizon and are complicated by calf price volatility and uncertainty. The current situation is unique in that calf prices are extremely low compared to the record-setting prices received in 2014 and 2015, when beef cow numbers were at historically low levels. So producers are not only considering heifer investments from a replacement perspective, but also from an expansion perspective. By utilizing a stochastic capital investment model, the analysis will determine the conditions under which the expected return on bred heifers purchased (or raised) will be economical if purchased in a declining price environment. The data includes numerous variables such as genetics, the number of marketable calves, annual maintenance costs, and discount rate. The net present value approach implemented in this paper will analyze the heifer investment that producers undertake when considering the present value of a replacement heifer over the production lifespan. The results of the study support producers retaining replacement heifers in the lower price environment.

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