Stockers?

[opensky]

I'm just finishing my third year as a small cow/calf, grass fed beef producer. I relocated "back home" last year for more access to land. I started out with 190 acres of pasture last year. This year, I'm leasing 50 acres of dryland ground next to the pasture to plant annual forage crops (BMR sorghum-sudan, pearl millet, cowpeas, etc.). Suddenly, I have access to 80 acres of irrigated ground to plant annual forage crops and I just got a call out of the blue yesterday to potentially rent another 170 acres of pasture ground.

I'd love to buy more cows but I'm concerned about taking on anymore debt. I'm trying to lease cows but I'm pretty picky about what cows I lease and what the share is. Plus, I need some cash flow. I like the cash flow with minimum risk that custom grazing provides but these two new landlords both have experience buying stockers/playing the markets and I thought about seeing if they wanted to try stockers on some sort of share basis.

Just some quick number scratching on paper looks like I could triple my profit over custom grazing if things go well or make about the same or slightly less then custom grazing, if things go not so well. What do you all think?

 

[tncattle]

I'm by no means an expert but stockers are going to be expensive for sure right now and unless you have the cash you will at least go into short term debt. If there is a train wreck then the debt stays on for longer. If you could add more cows for the long term I think that's better as it appears prices are going to be good for a long while. Of course that can change to-- :cowboy:

 

[Stocker Steve]

Stockers require better feed and more management to grow. Sounds like you have that.
Stockers require more $/acre to invest in cattle. Sounds like you do not have that.
Stockers have gone up more than cows in this area. I would be concerned about making a "virgin buy" right now.
Look into LRP, and calculate return on equity for each enterprise, before going farther

 

[Howdyjabo]

Buy cows-- why compete against everyone else trying to buy stockers when there is a shortage.

Also buy sheep for a quicker cash flow.

 

[cross_7]

I'm just finishing my third year as a small cow/calf, grass fed beef producer. I relocated "back home" last year for more access to land. I started out with 190 acres of pasture last year. This year, I'm leasing 50 acres of dryland ground next to the pasture to plant annual forage crops (BMR sorghum-sudan, pearl millet, cowpeas, etc.). Suddenly, I have access to 80 acres of irrigated ground to plant annual forage crops and I just got a call out of the blue yesterday to potentially rent another 170 acres of pasture ground.

I'd love to buy more cows but I'm concerned about taking on anymore debt. I'm trying to lease cows but I'm pretty picky about what cows I lease and what the share is. Plus, I need some cash flow. I like the cash flow with minimum risk that custom grazing provides but these two new landlords both have experience buying stockers/playing the markets and I thought about seeing if they wanted to try stockers on some sort of share basis.

Just some quick number scratching on paper looks like I could triple my profit over custom grazing if things go well or make about the same or slightly less then custom grazing, if things go not so well. What do you all think?

I'll give a my two cents and take it for what it's worth
Right now light weight calves are bringing nearly 3.00
You stated you need cash flow with minimum risk.
Stockers aren't minimum risk, there is potential to make some good money with stockers, but if this deal turns south (look at last spring) you could be in trouble
It could be feast or famine
Again calves are really high and cows/calf is where the real winner is if you had the cows before prices went up, but cows are high right now and it's going to be slow to get your investment back and turn a profit buying cows.

Taking stockers in on the gain or taking in cows on a calf share may be your safest and cheapest route, but probably with less return
It'll buy you sometime to get the operating capital you need
Unless your landlords that you stated

two new landlords both have experience buying stockers/playing the markets and I thought about seeing if they wanted to try stockers on some sort of share basis.

want to take on the bulk of the debt and risk and you buy in a percentage and they pay you for the taking care of them

 

[cross_7]

One other option I didn't think of before
You could forward contract the calves and lock in your profit
You could buy the calves at a given weight sell them now at a projected future weight at a future time
Guarantees your profit and limits your loss, but if cattle take a jump in price you have no upside

 

[opensky]

Thanks all! Great points, some I was aware of and others I I wasn't. Definitely gave me some things to think about. I'll keep you posted.

 

[js1234]

One other option I didn't think of before
You could forward contract the calves and lock in your profit
You could buy the calves at a given weight sell them now at a projected future weight at a future time
Guarantees your profit and limits your loss, but if cattle take a jump in price you have no upside

A great tool but you're also gambling on the gain. Health/weather etc. Still the way I'd handle stockers if I were in his shoes and decided to run them, just one more component to think about.

 

[js1234]

More profit potential in stockers but much more risk. Not saying don't do it but just consider that.

 

[cross_7]

Health,medicine cost, poor gain, not getting them bought right and interest at the bank are the biggest obstacles to turning a profit
Death loss is obstacle in not losing your ass
I ain't trying to discourage you, but its worth mentioning

Edit
Having the calves hedged goes without saying
If it were me I get ahold of a broker(superior or whoever) and let them take care of contracting them

 

[SRBeef]

If you have long term lease agreements on this additional land, make up a plan, buy bred cows. Go to a good local banker, go over your plan and borrow money to purchase some bred cows, not heifers, cows.

A good local banker will give you feedback on your plan. You can use the cows for collateral on part.

If it flies, contract a portion of the calves for fall delivery, enough to cover your loan payment. Forget about trying to hit the high, just lock in a profit on the calves.

Good luck.

Jim

 

[coalburner]

What about buying old cows that are heavy bred? Let them calve and carry them both back to the barn? Maybe some S/S cows, seems like there is always a few like that that run thru the sale barn each week?

 

[jerry27150]

heard of some guys that make money taking care other peoples cows on their land til they get enough money to get own cows

 

[cross_7]

I've have a similar situation, I sold out in aug 2013. I'm wishing now I'd figured a way to keep the cows I had.

I'm thinking cows with 25% out of pocket, 75% borrowed with a 3 year payback
The only problem is I ain't sure where this thing is headed
If we have another drought like in 2011/2012 then I see cows getting cheaper
If not then I see them getting even higher

Stockers on the other hand is a short term deal and can bail out and not get hurt if things turn south