4.05 - Bull earning capacity calculator
The bull earning capacity calculator will help you predict the estimated earning capacity of each bull based on the dollar index value and estimated number of cows to be mated.
This tool will help you avoid two common pitfalls when buying bulls:
- paying too much for the apparent ‘super bull’ when economically the second best bull is better value
- buying the worst bull in the catalogue because he was ‘cheap’, but ‘paying’ for his poor performance later.
Use the index values as an initial screening tool and then scrutinise the individual EBVs to refine selections based on the needs of your enterprise.
When calculating indicative value, a price needs to be nominated that you consider reasonable to pay for an ‘average bull’ of the particular breed, which is then equated to the average index value for the breed.
The indicative value of any bull of that breed is then derived from this average price, taking into account the difference between the bull’s index value and the average index value and the number of cows he will be mated to in his working life. The equation for determing indicative value is:
(index value - average price) x 0.5 x no. of cows mated + average price = Indicative value
The index value is multiplied by 0.5 as EBVs of a bull only account for half the genetics with the other half coming from the cow.
A bull with an index value of 80 in a breed where the average index value is 40, mated to 100 cows in his working life with an average bull price of $4,000 will be worth:
(80 – 40) x 0.5 x 100 + $4,000 = $6,000
Indicative values reached using this equation are break even purchase prices and as such are the upper limit of what should be paid for the marginal genetic worth of the bull over and above breed average.
It is important to remember that the chosen index needs to be based on costs and returns similar to those in your enterprise to be relevant. While it is unlikely to be the same actual value if you use a ‘generalised’ index, such as those developed by breed societies, the ranking of bulls should be very similar by both methods.
Capturing the benefits
The $Index value is the estimate of genetic merit for the whole of the supply chain.
Cow-calf breeders will not realise all of the additional value for the higher $Index value as this is shared across all participants in the beef supply chain.
When investing in 'superior' genetics (particularly for carcase traits) it is important to consider your ability to capture the expected economic benefits generated across the supply chain as a result of the improved performance of future progeny.
For example, if you are selling on the open market there may be little opportunity to capture a share of the added value from improved carcase performance. Where possible, it is best to seek arrangements that will allow you to recoup the benefit of the investment in superior genetics, for example through retained ownership programs.