Financially Optimal Culling Strategies for Western Canadian Cow-Calf Producers
Date
2023-09-28
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
ORCID
0009-0001-8279-8524
Type
Thesis
Degree Level
Masters
Abstract
Canadian cow-calf producers often experience slim margins and focus on reducing costs
to maximize their economic profit. This study aims to identify financially optimal breeding female
culling strategies using production and financial data from 16 ‘typical farms’ in the Canadian Cow-Calf Cost of Production Network (COP Network). Managing the breeding herd inventory
composition through culling and replacement decisions impacts the future cashflows and the value
of the herd. Average values from 16 ‘typical farms’ in the COP Network were used to generate
four farms with combinations of high and low costs and productivity. Four culling scenarios were
looked at in this thesis; the base scenario does not account for wean weight differences based on
dam age. Scenarios 1 through 3 vary wean weight based on dam age using the Beef Improvement
Federation (2002) factors and price slide adjustments. Replacements come from home-raised
heifer calves (Scenario 1 and 3) or purchased bred heifers (Scenario 2). Using these culling and
replacement scenarios a net present value (NPV) model is converted to an equivalent annual
annuity (EAA). The enterprise profitability analysis assesses the cash flow and returns on assets
(ROA) for the cow-calf and home-raise heifer enterprises and whole farm business in three
scenarios (1 through 3). This analysis considers the depreciation of breeding females over their
productive life, assessing the cash flow and ROA impact of different culling decision rules. When
evaluating the ROA, depreciation is considered when calculating the accrual net income.
Depreciation is a significant cost when looking at accrual-based income, which is the proper way
to measure financial performance when considering investment alternatives. By reducing breeding
stock depreciation through lowering heifer development costs, farms can positively impact the net
income of the enterprise. The EAA model shows greater EAA valuation for home-raised bred
heifers over open females. The enterprise ROA model found the home-raised heifer enterprise to
be profitable for the majority of farms. The whole farm business was the most profitable for these
same farms, suggesting home-raised bred heifers are more profitable than purchasing bred heifers
priced at the Alberta 5-year average price of $1978/hd (CanFax, unpublished data). These models
provide a financial perspective on the optimal culling decision based on a farm's costs and
productivity, as well as the source of replacements (home-raised or purchased).
Description
Keywords
culling, depreciation, equivalent annuity, net present value, return on assets
Citation
Degree
Master of Science (M.Sc.)
Department
Agricultural and Resource Economics
Program
Agricultural Economics