WEF DECEMBER 2018 Determining how Idaho beef cattle 78

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1 Determining How Idaho Beef Cattle Producers Value Bull Selection Characteristics Hernan Tejeda, Assistant Professor and Extension Specialist, University of Idaho Benton Glaze, Beef Extension Specialist and Associate Professor, University of Idaho K. Scott Jensen, Extension Educator-Owyhee County Chair, University of Idaho Abstract 1 Bull expected progeny differences (EPD) and actual performance data were examined along with their auction prices in order to identify the significant impact of different traits on the resulting bull s price, in specific regions of the Pacific Northwest. The objective was to determine the characteristics most valued by bull purchasers for this region of the country, which receives less precipitation and has higher elevation when compared to the Plains or the Midwest, where most similar studies have been focused in the past. Auction catalog information of bull sales and final sale price, from two different regions in Idaho, are used to estimate hedonic models, with price as a function of their simple performance measurements (SPMs), EPDs and value indexes. For the north central region of Idaho, the catalog provided SPMs birth weight (BW), 205-day weight (205 WT) and 365- day weight (365 WT) had a significant positive effect on the price paid by cow/calf producer. In addition, EPDs for milk (MILK), docility (DOC) and birth weight (BEPD) were significant, though BEPD had a negative effect on the bull s price. For the southwest region of Idaho, the only SPM provided in all the catalogs birth weight (BW) was found to have a significant negative effect on price. The yearling age EPD (YEPD) was found to have a significant positive effect on price. In this southern region of Idaho, both the index of weaned calf value ($W) and of cow energy value ($EN) were found to have a significant positive effect on prices. Some results corroborate previous study findings, though others appear to be related to the geographic region of the U.S. More data are being sought to provide further insights and measure their robustness. 1 This work is supported by USDA NIFA, Hatch project IDA and the Idaho Agricultural Experiment Station. WEF DECEMBER 2018 Determining how Idaho beef cattle 78

2 Figure 1: Average Number of Cattle and Calves per 100 Acres of All Land in Farms. (2012) Introduction The cattle industry entered a new cattle cycle in 2014 (Tonsor and Mitchell, 2017). These cycles generally last about years, and begin with a few years of herd expansion and lower cattle prices (Feuz and Umberger, 2003). This cycle period is characterized during its first few years by a larger cattle inventory and lower prices. In Idaho, the cattle sector is second only to the dairy industry as a major contributor to the state s agricultural economy. In 2014, cattle and calves cash receipts reached 2.04 billion. However, this amount decreased to 1.95 billion dollars in 2015 and in 2016 it dropped further to about 1.74 billion dollars: a decline of almost 11% from 2015 and about 15% from The cattle and calves cash receipts in 2016 represented 25.4% of all agricultural receipts in Idaho. Most recently in 2017, cattle and calves cash receipts in Idaho were 1.66 billion dollars, representing 22.6% of all agricultural receipts in the state. A substantial portion of the Idaho cattle industry, over 70%, consists of beef cow-calf production. Prior to weaning calves, cattlemen tend to maintain beef cows and their calves on rangeland and irrigated pasture, and also may utilize harvested forages (Feuz and Umberger, 2003). The majority of these calves are sold either to feedlot or post-weaning stocker/backgrounder operations. As noted by Dhuyvetter et al. (1996), bulls play a significant role in determining the economic returns of commercial beef cattle producers, since they represent 50% of the genetic composition of the calf crop. For producers who retain their own heifers as replacement females, WEF DECEMBER 2018 Determining how Idaho beef cattle 79

3 Figure 2: Land Elevation in Plains and Western U.S. 87.5% of the genetic makeup of the herd after three generations will reflect the genetics of the last three bulls used. Therefore, heritable traits/characteristics are highly important and one of the major relevant determinants of bull market price differentials. Cattle and calf operations in the Pacific Northwest (PNW) area are shown in Figure 1. Idaho cattle and calf operations are primarily in the southern part of the state. However, a substantial number of cattle and calf operations are in Idaho s north central region. This area possesses parts of terrain with over 5,000 feet of elevation as seen in Figure 2. WEF DECEMBER 2018 Determining how Idaho beef cattle 80

4 Figure 3: Average Annual Precipitation in Inches Moreover, it is a region of semiarid climate conditions with less than 10 inches of annual precipitation as shown in Figure 3. Cow-calf producers seek to improve the efficiency of their operations by purchasing /incorporating bulls with traits that favorably match their production and marketing environments. During the process of purchasing bulls, prospective buyers are often provided numerous pieces of information pertaining to each bull offered at auction or through private treaty sales. The provided information may include SPMs such as a bull s own birth weight, weaning weight, yearling weight, scrotal circumference, ultrasound measures, within herd performance (e.g. actual weight) ratios and lineage. In addition, EPDs may be included for a variety of traits, which consider additional biological information from the animal s performance as well as from its relatives performance. While many of the characteristics used in bull selection are measured and reported numerically, some traits can only be evaluated visually. Therefore, buyers often prefer to see animals in person, prior to purchase, to evaluate the bulls conformation, movement, and other visually appraised characteristics. The results of these visual appraisals are also included in the information that is considered before purchasing a new herd sire. A study by Chvosta et al. (2001) investigated the usefulness of these two types (SPMs, EPDs) of characteristics for bull buyers in their evaluation of future bull performance. The study was conducted using data specifically from Angus Bull auctions held in Montana, Nebraska, and South Dakota. The authors found that despite many EPDs already containing much of the SPM information, buyers made use of both types of information when valuing bulls. Moreover, when buyers compared bulls within a herd, information from SPMs were found to have more relevance than EPDs in the final price. However, when potential buyers compared animals across different herds, information revealed by EPDs had more influence on bull prices. Earlier, Dhuyvetter et al. (1996) studied the market value of the bull s physical and genetic traits, as well as EPDs and marketing factors. This study considered bulls from the Simmental, Charolais, Hereford, Red Angus, Gelbvieh, Limousin, WEF DECEMBER 2018 Determining how Idaho beef cattle 81

5 and Angus breeds. Sales of bulls from Kansas in 1993 were used in the study. Results suggested that EPDs and the bull s physical characteristics had a significant effect on the price paid by bull purchasers. Jones et al. (2008) studied the economic values of purebred Angus Bulls based on SPMs, EPDs, ultrasound EPDs, and carcass quality predictors. As mentioned in the study, data from 11 bull auctions in the Midwest, Rocky Mountain and Northwest regions of the U.S. were used, without identifying specific states from each region. The authors obtained the actual weights, EPDs and pedigrees from the American Angus Association (AAA). In line with Dhuyvetter et al. (1996) and Chvosta et al. (2001), the authors applied a hedonic modeling framework. Results found that both SPMs (age and weights) and EPDs (birth, milk production, and others) were significant. Moreover, the authors estimated a second model that included carcass traits, such as actual weights, production EPDs and marketing factors. Each of the ultrasound EPDs were significant; e.g. additional units of intramuscular fat and ribeye increased the price of the purchased bull; while increases in fat thickness resulted in a lower price. More recently, a new set of genetic technologies (DNA markers, genomic enhanced EPDs, etc.) and tools have been developed for use in beef cattle selection. Vestal et al. (2013) were among the first to investigate the value attributed by bull buyers to different information provided through DNA profiles. They used data from three Oklahoma Beef Inc. (OBI) performance-tested bull sales and focused on the data obtained for Angus Bulls. The study compares revealed preferences (RP) with stated preferences (SP) collected from mail surveys of prior OBI bull buyers, including their willingness to pay for particular characteristics. They separately model the attributes from RP data and SP data and then pool the common parameters to model and estimate a RP-SP model. Results suggest that including more (genomic) information leads to higher prices paid for bulls. The study by Chvosta et al. (2001) notes that yearling weights of calves, and the corresponding yearling weights of bulls are affected statistically by regional effects such as weather and geography. As noted, Idaho s topographic and climate conditions are quite different from both the Plains and Midwest. Thus, the objective in this paper is to investigate the bull characteristics valued by cow-calf producers for this PNW area and contrast them with those from prior studies. That is, are the bull characteristics identified in prior studies the same ones most valued by bull purchasers in Idaho? What specific traits, considering SPMs and EPDs, are of greatest economic importance for cow-calf producers? Data For this purpose, we obtained data from three bull auctions representing two regions of Idaho, including the selling price as well as EPD values and SPMs described in their respective catalogs. Each auction consists of the sale of bulls from an individual Angus producer. Two auctions were held in Southwest Idaho on different dates in March of 2018, selling yearling and two-year old bulls. Our focus is on the yearling bulls, of which a total of 147 were sold between the two bull sales. 2 The other auction was located in North Central Idaho and was held at the end of February in As mentioned previously, bull prices were obtained from the auction in addition to the EPD and SPM data made available to the buyers through the sale catalog. A total of 109 transactions were recorded. It is relevant to note that a portion of the bulls in one of the Southwest Idaho auctions and all of the bulls in the North-Central Idaho auction had the additional SPMs of 205-day weaning weight and 365-day yearling weight in their records. In addition, both regional auctions provided value indices and a ranking of the bulls within its individual herd for the weaned calf value index. The summary statistics for the sale in North Central Idaho are in Table 1a, followed by summary statistics of the two sales in Southwest Idaho in Table 1b. 3 As defined by the American Angus Association, Calving Ease EPD (CEPD) denotes the difference in percentage of unassisted births, with a higher value indicating greater calving ease in first-calf heifers. Birth Weight EPD (BEPD) is a predictor of a sire s ability to transmit birth weight to his progeny, in comparison to that of other sires as are the following EPD measures. Weaning Weight EPD (WEPD) is a predictor of a sire s ability to transmit weaning growth to his progeny. Yearling Weight EPD (YEPD) is a predictor of a 2 The data from the two auctions were combined due to the similarity of the variables contained in the auction catalogs. 3 Only measures reported consistently between both southwest Idaho auctions were included. WEF DECEMBER 2018 Determining how Idaho beef cattle 82

6 Table 1. Summary Statistics of Bull Sales (1a.) North Central Idaho & (1b.) Southwest Idaho 1a. n = 109 Variable Mean Std. Dev. Minimum Maximum Price, $ 3, , ,250 7,750 Calving Ease EPD (CEPD), % Birth Weight EPD (BEPD), lbs Birthweight (BW), lbs Weaning Weight EPD (WEPD), lbs Yearling Weight EPD (YEPD), lbs Scrotal Circumference EPD (SC), cm Maternal Milk EPD (MILK), lbs Docility EPD (DOC), % day weaning wgt. (205 WT), lbs day weaning wgt. (365 WT), lbs Carcass Weight EPD (CWT) Marbling EPD (MARB) Ribeye Area EPD (RIBEYE), in Fat Thickness EPD (FAT), in Weaned Calf Value index ($W), $ Rank of Bulls for $W (RANK), % Beef Value Index ($B), $ b. n = 147 Variable (unit) Mean Std. Dev. Minimum Maximum Price, $ 3, ,200 8,250 Calving Ease EPD (CEPD), % Birth Weight EPD (BEPD), lbs Birthweight (BW), lbs Weaning Weight EPD (WEPD), lbs Yearling Weight EPD (YEPD), lbs Maternal Milk EPD (MILK), lbs Marbling EPD (MARB) Ribeye Area EPD (RIBEYE), in Weaned Calf Value index ($W), $ Beef Value Index ($B), $ Cow Energy Value Index ($EN), $ sire s ability to transmit yearling growth to his progeny. Scrotal Circumference EPD (SC) is a predictor of the difference in transmitting ability for scrotal size. Maternal Milk EPD (MILK) is the part of a calf s weaning weight attributed to milk and mothering ability. Docility EPD (DOC) is expressed as a difference in yearling cattle temperament with a higher value indicating more favorable docility. It predicts the average difference of progeny from a sire in comparison with another sire s calves. Carcass Weight EPD (CWT) is a predictor of the differences in hot carcass weight of a sire s progeny, in comparison to progeny of other sires. Marbling EPD WEF DECEMBER 2018 Determining how Idaho beef cattle 83

7 Table 2a. OLS Estimation Results for North Central Idaho Variable Parameter Standard Marginal Effect at Estimate Error Average Price Intercept *** CED BEPD ** BW ** YEPD SC MILK ** DOC *** WT * WT *** MARB RIBEYE FAT $W % RANK R2: R2 Adj.: * Significant at 10% level RMSE: ** Significant at 5% level N: 109 *** Significant at 1% level (MARB) is expressed as a fraction of the difference in USDA marbling score of a sire s progeny, in comparison to progeny of other sires. Ribeye Area (RIBEYE) is a predictor of the difference in ribeye area of a sire s progeny, relative to other sires progeny. Fat Thickness EPD (FAT) is a predictor of the difference in external fat thickness at the 12th rib of a sire s progeny, in comparison to other sires progeny. Weaned Calf Value index ($W) is the expected average difference in future progeny performance for pre-weaning merit. Rank of Bulls for $W (RANK) is the bull s rank with regard to the weaned calf value. Beef Value Index ($B) is the expected average difference in future progeny performance for post-weaning and carcass value relative to progeny of other sires. Cow Energy Value Index ($EN) assesses differences in cow energy requirements as an expected dollar savings difference in daughters of sires. A larger value is preferred when comparing two animals. Methods & Results Hedonic models are used to be comparable to prior studies applying similar methods (Vestal et al., 2013; Jones et al., 2008; Dhuyvetter, 1996). For each region, a standard regression model estimates each bulls price as a function of the contribution of each catalogued variable. After checking the conditional distribution of prices, the log of prices was used in order to mitigate their skewness (Woolridge, 2004) 4. In the case of North Central Idaho s auction, the results from catalogued variables are in Table 2a. In the case of Southwest Idaho, results from catalogued variables from the two sales are in Table 2b. Before delving specifically into the results, it is relevant to mention there were many variables in both estimated models that presented multi-collinearity. In the case of North Central Idaho (Tables 1a, 2a), after estimating the initial model with all the variables and obtaining their variance inflation factors (VIF), it was found that each of the variables WEPD, YEPD, CWT, and $W had VIF factors above nine. 5 This multi-collinearity 4 White s Test for Heteroskedasticity was performed on the regression residuals of the estimated OLS regressions, failing to reject the null hypothesis of Homoskedasticity. 5 Tables with correlations among each variable for the estimated models are available upon request. WEF DECEMBER 2018 Determining how Idaho beef cattle 84

8 was controlled by discarding those variables that appeared to not provide additional information and re-estimated the model to arrive at the final results reported. Results from the North Central Idaho auction (Table 2a) reveal that in addition to the intercept being statistically significant at the 1% level, so are the factors DOC and 365 WT. These factors have positive marginal effects on the average (expected) price of bulls sold of $36.52 and $5.95, respectively. The factors BEPD, BW, and MILK are significant at the 5% level. A negative marginal effect of -$ on the average prices of bulls sold is associated with BEPD; while positive marginal effects of $36.64 and $38.31 on the average price of bulls sold are associated with BW and MILK, respectively. Lastly, 205 WT was significant at the 10% level, having an associated positive marginal effect of $3.34 on the average price of bulls sold. Table 2b. OLS Estimation Results for Southwest Idaho Variable Parameter Estimate Standard Error Marginal Effect at Average Price Intercept *** CED BEPD BW ** YEPD *** MILK MARB RIBEYE $W *** $B $EN *** R2: R2 Adj.: * Significant at 10% level RMSE: ** Significant at 5% level N: 147 *** Significant at 1% level The factor with the greatest impact on bull prices in the North Central Idaho auction was BEPD. Calving difficulties in beef cattle can result in the death/injury of cows and calves, decreased rebreeding rates, increased veterinary costs, and a number of other issues. Reductions in the incidence of calving difficulties in beef herds can have a positive impact on an operation s bottom line. The lower BEPD bulls are expected to sire lighter calves at birth potentially resulting in fewer calving difficulties. The positive marginal effects associated with BW, 205 WT, and 365 WT (all SPMs) suggest producers are also considering these factors as they purchase bulls. This is not surprising since cattle are sold on the basis of weight and each factor represents a weight trait. The positive marginal effect of BW is in contrast to the negative marginal effect of BEPD. It is unclear at this time why this relationship was found, but it may be due in part to the selection criteria and selection protocols used by bull buyers. As producers seek to increase the weights of their calves and have more product to sell, they emphasize weight traits in selection. Producers selecting bulls for use on cows are less concerned about calving difficulties and choose bulls with greater growth/weight potential. However, producers selecting bulls for use on heifers place a great deal of emphasis lower birth weights. As more data is collected and analyzed, this relationship may become more clear. A positive marginal effect associated with MILK was also found. This suggests that producers are selecting bulls that will sire heavier milking daughters. These heavier milking daughters may afford their calves a better pre-weaning environment which would result in more pounds at the time of sale. In addition, cattle with calmer temperaments cause less injury to herd mates and handlers, and have better reproductive rates and improved performance (Vann et al., 2008; Cooke et al., 2012). The level WEF DECEMBER 2018 Determining how Idaho beef cattle 85

9 of significance and the marginal price effect of DOC shows that producers are considering and using this factor in their bull-buying decisions. In the case of the Southwest Idaho auctions (Tables 1b, 2b), it is relevant to note that these also presented sizeable VIF factors among estimated parameters when considering all of them for initial model estimation. The parameters with a large VIF value (above nine) were WEPD and YEPD. After addressing this matter by discarding WEPD under the criteria of largest r-squares and re-estimating the model, we find that in addition to the intercept, the factors YEPD, $W and $EN were statistically significant at the 1% level. These factors all have a positive marginal effect on the average price of bulls sold. As YEPD increases by one unit the result is an increase in average price of bulls of $ In the same manner, positive marginal effects of $20.59 and $39.19 on the average price of bulls sold are associated with $W and $EN, respectively. The other factor that was significant was BW, at the 5% level, which had a negative marginal effect on the average price of bulls sold of -$ The factor with the greatest impact on bull prices in the Southwest Idaho auctions was $EN which represents cow energy value. Bulls with larger $EN values are expected to sire daughters with lower feed energy expenses. The positive marginal effect ($39.19) associated with $EN suggests that buyers were willing to pay more for bulls as the $EN values increased. Considering the location of the bull buyers at these auctions (unpublished data), many bulls will be placed in environments that tend to have limited feed/forage resources. Daughters produced from the higher $EN bulls have the potential to be more efficient producers in the environments they are placed. As mentioned previously, since cattle are sold on the basis of weight, producers tend to select bulls that will improve weight and growth traits in their herds. Many producers in this region of Idaho sell animals at weaning, or shortly thereafter. This practice is consistent with YEPD and $W having a significant effect on the bull prices in this sale. As noted earlier, reductions in calving difficulties in beef herds can have a positive impact on an operation s bottom line. The negative marginal effect (-$21.36) associated with BW suggests that lighter birth weight bulls are being selected in an effort to potentially reduce the incidence of calving difficulty. Lastly, as we compare the factors that are presented from the North Central Idaho auction and the Southwest Idaho auctions we find that, depending on the auction, SPMs (BW, 205 WT and 365 WT) are used and found to be significant as are several other EPDs and dollar value indexes (BEPD, YEPD, MILK, DOC, $W, $EN). The North Central Idaho sale included all three (significant) SPMs; and the Southwest sales only included one (significant) SPM. This may suggest that as more information is presented, producers gravitate to what they are comfortable with and know (SPMs weights, etc.) versus those which they may be less comfortable with (EPDs). This result corroborates Chvosta (2001) where buyers show preference for SPMs when purchasing bulls from the same herd. Efforts are currently underway to collect data from additional bull auctions to increase the number of observations and corroborate findings. In addition, past sale data/information from the same auction sites are also being requested in order to study the evolution of the importance of these characteristics over time. Conclusions The characteristics of bulls sold through auctions were studied in order to identify the impact of different traits on each bull s selling price, in regions of the Pacific Northwest. This region is characterized by less moisture as well as an increased elevation in comparison to the South, Plains or the Midwest. Our objective was to determine the characteristics most valued by bull purchasers in these specific regions by using catalog information, and final sale price, of bull auctions from two different regions in Idaho. Hedonic models were estimated with price modeled as a function of bull s simple performance measurements (SPMs), expected progeny differences (EPDs) and some value indexes, in accordance to the availability of these catalog variables from each region s sales. We found that for the north central region, the catalog provided SPMs birth weight (BW), 205-day weight (205 WT) and 365-day weight (365 WT) had a significant positive effect on the price paid by cow/calf producers. Furthermore, EPDs for milk (MILK), docility (DOC) and birth weight EPD (BEPD) were also significant, and yet BEPD had a negative effect on bull s price. Finding an unexpected significant positive BW effect with a more anticipated negative effect from BEPD leads us to WEF DECEMBER 2018 Determining how Idaho beef cattle 86

10 conclude that more study here is required. For the southwest region, the catalog provided SPM birth weight (BW) was also found to be significant, though having a negative effect on price. Moreover, only the yearling age EPD (YEPD) was found to have significance, positively affecting price. In this region, both the index of weaned calf value ($W) and of cow energy value ($EN) were found to have a significant positive effect on prices. Some results corroborate previous study findings, though others appear to be related to the geographic region. More data is being sought to corroborate results and increase the robustness of the study. References Chvosta, J., R. Rucker, and M. Watts Transaction Cost and Cattle Marketing: The Information Content of Seller-provided Presale Data at Bull Auctions. American Journal of Agricultural Economics 83: Cooke, R.F.m D.W. Bohnert, B.I. Cappelloozza, C.J. Mueller, and T. Delcurto Effects of temperament and acclimation to handling on reproductive performance of Bos Taurus beef females. Journal of Animal Science, 90(10): Dhuyvetter, K., T. Schroeder, D. Simms, R. Bolze, and J. Geske Determinants of Purebred Beef Bull Price Differentials. Journal of Agricultural and Resource Economics 21: Feuz DM and Umberger WJ Beef cow-calf production. Veterinary Clinics of North America: Food Animal Practice 19(2): Jones, R.D., T. Turner, K.C. Dhuyvetter, and T.L. Marsh Estimating the Economic Value of Specific Characteristics Associated with Angus Bulls Sold at Auction. Journal of Agricultural and Applied Economics 40: Tonsor, G.T. and J.L. Mitchell Evaluating Cattle Cycles: Changes Over Time and Implications. Kansas State Dept. of Agricultural Economics. Publication: AM-GTT Downloadable at: agmanager.info/sites/default/files/pdf/ksu_factsheet_cattlecycle_ pdf Vann, R.C., J.A. Parish, and W.B. McKinley Mississippi cattle producers gain insight into temperament effects on feedlot performance and subsequent meat quality. The Professional Animal Scientist, 24(6): Vestal, M.K., J.L. Lusk, E.A. DeVuyst, and JR. Kropp The Value of Genetic Information to Livestock Buyers: a Combined Revealed, Stated Preference Approach. Agricultural Economics 44: Wooldridge, J.M Introductory Econometrics: A Modern Approach. 4th Edition: South-Western Cengage Learning. WEF Western Economics Forum WEF DECEMBER 2018 Determining how Idaho beef cattle 87