Profitability in Marketing Bred Heifers in Alabama

Abstract

In 2018, the inventory of cattle in the United States was of 94,298,000, from which almost the 7% (6,260,000) came from the Southeast (Alabama, Kentucky, Mississippi, and Tennessee) (USDA-NASS). Most cattle producers in Alabama have cow-calf operations that produce calves to be sold as stockers or directly to feedlots in the Midwest. Alabama ranks 8th in the U.S. for the total number of farms with beef cattle, so profitability in cattle marketing is important for the sustainability of {Alabama's} diverse agricultural industry While previous literature has focused on the value of feeder cattle physical characteristics in marketing decisions, there have been fewer studies on the characteristics that influence replacement/bred heifer prices. Breeding decisions are inputs in cow-calf production and important to the profitability of cow-calf operations. Therefore, there is a need to study the characteristics of bred heifers/cows that buyers value in order to provide information that can inform producers' marketing and purchase decisions. Some of the characteristics of replacement cows are easily visible such as hide color, whether the cows have horns, and lot size; other characteristics are not as easily visible, such as the seller's reputation, the calving range of the lot, and the specific breeds within the lot.

The goal of this paper is to determine (a) if there are reputation effects involved with bred heifer sales, (b) the characteristics that bring a premium or a discount to the final price of heifers, and (c) how the reputation effects compare with the effects of other characteristics. We analyze data from the Herdbuilder Replacement Female Sale that takes place in Uniontown, Alabama in August each year. The dataset is an unbalanced panel of 55 producers selling 749 pens of 3-5 replacement heifers per pen, spanning years 2008-2017. We use a Hedonic pricing model to analyze the values of various bred heifer characteristics.

Results indicate that Alabama producers need to take into consideration some key characteristics, which may make bred heifers more costly when purchasing replacement cows or may bring more value when marketing them. We provide a first look into reputation effects in replacement cattle markets, quantifying the benefits to producers of developing a good reputation among area cow-calf producers. According the analysis we found the variation in producer reputation effects, ranged from a discount of 11% to a premium of 56%, with an overall average premium of 20%. We also identified characteristics that producers in the south value, which may be different than those in the midwest where most of the previous studies focus due to data availability. For example, the Hereford Brahman mix heifers (also known as F1 Tigerstripe) receive a significant premium of 13%-14% compared to the other cattle in this sale. Producers who focus on creating a good reputation, choosing quality breed types which suit the southern climate, use Artificial Insemination (AI) to make calving dates more predictable, and put together uniform pens of cattle obtain some of the largest premiums when marketing heifers as replacements.