To Buy or not to Buy

[grainfarmer]

Have some extra grass and looking at buying some extremely good black,gelvieh cross heifers. 800 lbs plus and I can get them for $780.00. I would resell in Jan or Feb. What is the thinking out there, are cattle going to hold there own as I am hoping if I buy them to resell them for $1150.00. Also they are one iron heifers, I think I know what I am doing but just looking for more input.

[poorboy]

It looks to me that with a 91-95 cent dollar, higher fuel prices, and reasonably high feed costs that fall calf prices will be dismal at best. If this is true I think you would see a lot more cows come to market, as people will just be tired of it all. If more cows do come to market then I don't see you making any money on the animals you are looking to buy.

In situations like this, the time to buy will be this fall, not this spring.

With higher gasoline prices and a general slowing in the US economy, I could see the demand for beef dimishing in the US consumer market. Also, US producers have been increasing their herd size in response to the higher prices that have resulted since the BSE crisis, and there should be more supply hitting the market soon.

Hopefully I am wrong and prices are going to be super this fall, but my logic tells me that this year is not the time for the beef business, yet this fall I think there will be tremedous oportunity to start buying cows and keep your calves.

[grassfarmer]

Might work, but there is no guarantee. It's easy to buy heifers but will someone else want to buy them from you as breds next year at the money you expect? A neighbor tried the same with overpriced calves bought in the fall of 2005 - no-one wanted his breds this winter so now he has a new herd of cows. I've looked at this type of thing and with the risks involved have decided not to pursue it. It would be a safer bet to externalise your risk - sell your grass to a cow/calf guy that wants to pay you $30 a month or to a feedlot grazing yearlings. At least that way you can pencil a realistic return, buying heifer calves and reselling bred heifers is a total crapshoot in my opinion. Rearing homebred heifers from your own breeding program to sell is maybe a better business risk.

[farmers_son]

Grainfarmer: I hope you have an extra bull as well as the extra grass.

I think one of the main considerations is how do you see your income tax situation shaping up for 2007. If you foresee yourself paying a lot of tax in April 2008 your plan to purchase heifers and sell them in January or February will defer that income and the associated tax for an entire year. If on the other hand you are in a low tax bracket and do not expect to be paying much tax in 2008 then I would think you may be money ahead to make an arrangement with someone who is paying a lot of tax and needs to defer the tax more than you.

In considering any scenario like this I hope you have considered whether you can afford the risk. If you cannot afford to loose a significant amount of money then you cannot afford to play this game. Not to say you would loose but with profit there is risk and you have to be able to withstand the risk or you cannot play the game. I think you need to calculate your worst case scenario and decide if you can live with it and the effect a negative change would have on your cash flows or debt situation. See CAIS comment below.

I presume you or someone will be around all summer to look after these animals. Nothing like a herd of cattle to put a crimp in those vacation plans.

CAIS is still in effect for 2007 and any calculations of the profitability of this venture needs to consider CAIS. Assuming you have reference margin left (not many cow producers do) CAIS can backstop your downside risk and with a good understanding of the program your real profit may come from a CAIS payout. My view of CAIS is you should find every opportunity to get a payout if you have reference margin left because the program will not be around much longer and leaving unused reference margin is like leaving money on the table. Something to think about….

[kato]

My advice is to check out more than one scenario. Maybe a different class of cattle could return more.

Last fall we bought some really good one owner Simmental cows for an average of $710.00. Not our first choice of breed, but they were all from one breeding program, and were good strong cows. Probably 7 year old average.

Those cows have now calved, and we just took them to pasture with their calves. The calves are probably weighing between three and four hundred pounds now. They should be big boys by fall. We are hoping to sell these calves for close to the cost of the cows.

Have you checked out the prices on cow calf pairs? It's a little late for breds, but there are still pairs on the market. The dangerous times are behind them, and the calves will be worth some money themselves, on top of the value of the cows which should be bred as well.

The basic thing to remember is to keep your mind open to different approaches to using the grass. Do lots of homework.

Maybe after doing the homework, you will find the best thing is to graze someone elses cattle, take the money and enjoy the summer.

[rkaiser]

Enough of the "RENT IT OUT" advice folks. Where the heck are we going to find the risk takers to carry this industry if we keep discouraging them.

Buy something grainfarmer. Cows might be a good bet. Grass cattle might work - and who the heck knows if you buy them good Gelbveih heifers and find a Galloway bull or two to breed them to. I might be able to find you a buyer this fall. Sure there are a lot of maybe's but that is what makes life fun. If you have good intentions - things will usually work out fine. Get greedy and pushy and things usually backfire$$$$$$$$$$$$$$

Don't rent our your land grainfarmer - too safe and too fearful ----- Go for it.

[grainfarmer]

Thanks rkaiser as I purchased these heifers 2 nights ago and am bringing them home tommorrow.I appreciate all the other info from everybody else but deep down in my gut I new that I was going to purchase them...

[rkaiser]

And what --- may I ask ---- are you breeding them to????

By the way - I don't have any bulls for sale. Never do after sale day.