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<blockquote data-quote="Texas PaPaw" data-source="post: 186648" data-attributes="member: 2905"><p>Ollie'</p><p></p><p>Good points. Sorry, I did not make it clear that I was referring mostly to the cow-calf sector. And yes, I can see the scenario like you described as being a possibility. I guess in my mind this is forward contracting as opposed to VI. Guess it depends upon the definition of VI. Usually I think of the VI as owning the animal from birth to beef. IMO-when you get down to the specs they will require for breeding season, vacs, weaning, preconditioning, truckload lots, etc it will could much of the shine out of their $750 price. It could be very attractive for some & a nightmare for others. Under this scenario only the contract would bind the calves to the VI. This is why I would classify it as a forward contract. Lots of forward contracting already being done in the stocker/feeder business. In the hog & poultry VI the cooperators have huge illiquid, facility investments that require the income from the VI for a return on investment. I think it will take VI ownership of the cows at a minimum to truly bind a rancher to them. As in poultry & hogs the VI could own the animals but not the real estate. This would reduce the VI's capitol investment considerably, however just the cow herd would take a huge amount of capitol. I seem to recall that the largest sow operator has around 200,000 sows. At $150/sow that would be only $30 million. We currently have over 33 million beef cows in the US. At $1000/cow this would be $33 Billion. To control even 10% of the cow herd would require a mere $3.3 billion-over 10 times the investment of the largest sow herd. In addition to the huge investment in cows, the slow reproductive cycle(capitol turnover) of cattle will make the corporate beancounter types have great reservations about huge investments in beef cows. It takes about 2 years from the time a cow is bred until the calf has been born, grown, fed & slaughtered. With hogs this process takes less than a year & with chickens it takes only a few months. Slow capitol turnover gives corporate beancounters heartburn because their investors, stock analysts & pension fund managers demand results next quarter at the latest, not 2 years down the road. It's the old "What have you done for me lately" mentality.</p><p></p><p>As the average beef cow herd is less than 50 head, I can't see much VI in this sector. Not sure how the Smithfields, Tysons, etc can economically deal with these smaller operations. Can see them possibly doing some 500+ cow deals with larger ranches. Seems that most of the eastern 1/2 of the US has been carved up into relatively small tracts, which makes any significant number of these large operations very unlikely in this area. </p><p></p><p>Again-IMO-the small cow-calf operator will probably be around for a long time due to the above reasons. No corporate best-management-practices can <strong>economically</strong> speed up the bovine reproductive cycle or eliminate grazed forage as the least cost feedstuff for a beef cow. Lots of good food for thought in these posts.</p><p></p><p>Just another 2 cents worth.</p><p></p><p>Good luck & happy trails</p><p></p><p>Brock</p></blockquote><p></p>
[QUOTE="Texas PaPaw, post: 186648, member: 2905"] Ollie' Good points. Sorry, I did not make it clear that I was referring mostly to the cow-calf sector. And yes, I can see the scenario like you described as being a possibility. I guess in my mind this is forward contracting as opposed to VI. Guess it depends upon the definition of VI. Usually I think of the VI as owning the animal from birth to beef. IMO-when you get down to the specs they will require for breeding season, vacs, weaning, preconditioning, truckload lots, etc it will could much of the shine out of their $750 price. It could be very attractive for some & a nightmare for others. Under this scenario only the contract would bind the calves to the VI. This is why I would classify it as a forward contract. Lots of forward contracting already being done in the stocker/feeder business. In the hog & poultry VI the cooperators have huge illiquid, facility investments that require the income from the VI for a return on investment. I think it will take VI ownership of the cows at a minimum to truly bind a rancher to them. As in poultry & hogs the VI could own the animals but not the real estate. This would reduce the VI's capitol investment considerably, however just the cow herd would take a huge amount of capitol. I seem to recall that the largest sow operator has around 200,000 sows. At $150/sow that would be only $30 million. We currently have over 33 million beef cows in the US. At $1000/cow this would be $33 Billion. To control even 10% of the cow herd would require a mere $3.3 billion-over 10 times the investment of the largest sow herd. In addition to the huge investment in cows, the slow reproductive cycle(capitol turnover) of cattle will make the corporate beancounter types have great reservations about huge investments in beef cows. It takes about 2 years from the time a cow is bred until the calf has been born, grown, fed & slaughtered. With hogs this process takes less than a year & with chickens it takes only a few months. Slow capitol turnover gives corporate beancounters heartburn because their investors, stock analysts & pension fund managers demand results next quarter at the latest, not 2 years down the road. It's the old "What have you done for me lately" mentality. As the average beef cow herd is less than 50 head, I can't see much VI in this sector. Not sure how the Smithfields, Tysons, etc can economically deal with these smaller operations. Can see them possibly doing some 500+ cow deals with larger ranches. Seems that most of the eastern 1/2 of the US has been carved up into relatively small tracts, which makes any significant number of these large operations very unlikely in this area. Again-IMO-the small cow-calf operator will probably be around for a long time due to the above reasons. No corporate best-management-practices can [b]economically[/b] speed up the bovine reproductive cycle or eliminate grazed forage as the least cost feedstuff for a beef cow. Lots of good food for thought in these posts. Just another 2 cents worth. Good luck & happy trails Brock [/QUOTE]
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