A spreadsheet application can be a useful decision aid to assist beef cattle producers with future purchases and forecast profit or loss based on purchase costs.
Mac Young, Texas A&M AgriLife Extension Service economist from Corpus Christi, gave a demonstration of the Bid Price Estimator for Beef Cows at the recent Texas and Southwestern Cattle Raisers Convention in San Antonio.
The tool has been around for many years, but has been updated to include such important items as cow management costs.
“What we’ve done to it is add calf and reproductive management factors,” he said. “The tool is primarily used to let producers evaluate what they can afford to pay for a cow or heifer to replace in the herd before going out and bidding on cattle. It includes other factors such as cow management costs, depreciation, financing costs – all that is part of the estimation.”
Young said the tool will estimate net present value, which is the present value of an asset versus its future value. It will also help a producer show profit or loss potential on the animal up to eight years out.
“You can put your assumptions in there based on whatever price you might be willing to pay and it will evaluate whether you can afford to pay that amount,” he said. “If it’s a positive net present value, that means it would be a good investment.”
Young said there have been cattle cycles dating back to the late 1800s with prices going up and down over a number of years. The estimator may have helped ranchers during recent record cattle market highs.
“Did you think cattle prices were going to stay at that level? What if prices trend down? I think using the estimator might have opened some people’s eyes at that time and they may have reevaluated some of their purchase decisions,” he said.
Overall, Young said the tool will help a producer analyze the potential investment return of a purchase and not make a hasty decision.
“Whether buying one animal or hundreds, you can evaluate what you can afford to pay for those animals,” he said. “Our job is to help producers with the decision making process and what they can afford as an investment.”
The tool is available at http://bit.ly/2o6wyvp