Livestock as Live Stock By Jordan Thomas, Ph.D.

COLUMBIA, Missouri: 

I sometimes emphasize to students that that familiar word “livestock”  is really two words: live and stock. These are still stocks, still investments they just happen to be living, breathing ones. That “live” word makes quite a difference, I realize. But as with any other investment, our goal with this live stock is to generate returns.

I have argued in multiple previous articles that we would do well to think of females in the commercial cow herd as an investment portfolio, divesting out of cows that have poor profit potential (i.e., cows that failed to conceive early in the breeding season) and reinvesting that equity in something that offers better return-on-equity potential.

In many cases that equity might bring in greater returns for the business if it were invested in something other than replace- ment females, but let’s set that point aside for a moment. If you are going to develop replacement heifers as investments to replace poorly profitable cows, how do you intend to go about selecting profitable commercial heifers?

Before you go into the weaning pen this year to try to select which heifer calves to develop, stop and think about actively managed mutual funds. Are you really confident that, just with your eye and instinct, you can pick out heifers that will outperform the average of your heifer calf crop?

I know you can sort off an obvi- ous cull heifer here and there, but can you really pick out the investments live stock that are going to outperform the rest? Or, just like those underperforming mutual funds, will you wind up with investments (cows) that generate poorer returns, all while incurring more expenses (heifer development costs) along the way?

If you are raising commercial cattle, there is a strong argument to be made for developing as large of a proportion of your heifer calf crop as possible rather than attempting to select just the right number of replacement heifers at weaning based on their appearance or perceived genetic merit. When we do this let’s say picking out 15 or so heifer calves to generate replacements for a herd of 100 cows we lock ourselves into keeping poorly profitable heifers.

Even if all 15 heifers conceive, it simply is not possible for every heifer to conceive in the earliest portion of the breeding season. Some of those heifers will be later conceiving and therefore less profitable investments, yet we will be stuck with the 15 we picked. What’s worse, because we wanted to ensure that all 15 of those heifers became pregnant, we likely incurred extra expenses (e.g., feed) in the development program. Poorer returns and higher expenses doesn’t that sound like the underperforming, actively managed mutual fund?

What if, for that same example 100-cow herd, we instead developed the majority of the heifer calf crop? Let’s say we developed 35 or so heifer calves, just as an example. Even with a pretty poor breed-up in those heifers and

a lower input nutritional development program, it is not at all unreasonable to think we could generate more than 15 early-conceiving heifers from which to select replacements. Ironically, by not trying to actively select the best ones at weaning, we might wind up with greater returns. And if we controlled the cost of the development program and/or developed a strong market for bred heifers, we likely can profit on those other non-retained heifers as either feeder calves or marketed bred heifers.

There is some wisdom in realizing our intuition and eye will not always lead us toward the highest returns. If you have followed investing trends over the last couple of decades, you know that investors are now more likely to turn to index funds’ lower-ex- pense, passively managed funds that simply track an overall market index like the S&P 500 rather than actively managed mutual funds.

One of my favorite quotes about the late John Bogle, founder of The Vanguard Group and an influential thought-leader in this humbler style of investing, is that he was “all cattle and not very much hat.” Are you after the bragging rights of having a good eye for selecting livestock? Or do you want to be in the commercial live stock business instead? If the latter, it might be time to rethink how you select and develop commercial replacement heifers.

Jordan Thomas, Ph.D. is the University of Missouri Beef Cow- Calf Extension Specialist in Animal Sciences. He can be contacted at ThomasJor@missouri. edu, or at 573-882-1804.