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Livestock Management and Marketing Considerations in Dealing With Drought

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Livestock Management and Marketing Considerations in Dealing With Drought Dr. Curt Lacy, Extension Economist-Livestock clacy_at_uga.edu Keith Kightlinger, Farm Business ... – PowerPoint PPT presentation

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Title: Livestock Management and Marketing Considerations in Dealing With Drought


1
Livestock Management and Marketing Considerations
in Dealing With Drought
  • Dr. Curt Lacy, Extension Economist-Livestock
    clacy_at_uga.edu
  • Keith Kightlinger, Farm Business Management
    Specialist
  • kkight_at_uga.edu

2
Overview
  • Where have we been?
  • Where do we think we are today?
  • Where are we going?
  • What can we do about it?

3
Fertilizer Prices 1997-2007
4
Fuel Prices 1997-2007
Diesel prices are up 152 since 2002
5
Impact of Fuel Fertilizer Prices on Cost of
Production
6
(No Transcript)
7
Where do we think we are?
8
Impact of Drought on Cow Numbers
  • January 1 U.S. Herd
  • 32.5 mil beef cows
  • Down 1 from 2007
  • Down 1.5 from 2006
  • January 1 SE Herd
  • 3.25 mil beef cows
  • Down 3 form 2007
  • Down 1 from 2006
  • Notables
  • GA largest decrease -7 from 2006
  • FL largest increase 2 from 2006

9
(No Transcript)
10
Three Biggest Mistakes Cattlemen Make During a
Drought
  • Do nothing hoping it rains or that additional
    land can be rented or hay purchased.
  • Early weaning AND marketing calves hoping that
    cows wont have to be liquidated.
  • Once culling begins, saving young cows (less than
    4 yrs) instead of more productive (4-7 yrs) cows.
  • Adapted from Gill and Pinchak. Destocking
    Strategies During Drought . TX AM University.

11
The Basics
  • Most cattlemen have a finite amount of money to
    put into an operation.
  • Money comes from 3 places
  • Cash on hand
  • Sales of assets (feed inventories, cows,
    equipment, real estate)
  • Borrowed capital
  • Assets-Liabilities Equity
  • EQUITY IS OUR MOST IMPORTANT FINANCIAL ASSET

12
Our financial priorities in any situation, in
order
  • Cover our variable costs (feed, fertilizer, fuel,
    labor, etc.).
  • Cover our fixed costs (taxes, insurance,
    principal and interest).
  • Pay ourselves.

13
How do we help ourselves cover these costs?
  • Fewer expenses
  • More income
  • Some combination of the two

Every decision you make has some impact on at
least on of these
14
Reducing the Cost of Production
15
Covering our Cost aka Cash Flow
Net Cash Flow Revenue Expense Payments Net
Cash Flow Calf Sales Cow Sales Feed Costs
Other Costs Pmts Where calf sales or cow sales
Wt. X Price
Drought Math 400 calf X 1.15/ 460 1,100
pound cow x 0.48/ 528 Cost per day
1.00/day for calf gaining 2/day Cost per day
1.40/day for dry cow to maintain weight
16
Suggested Operating Procedure (SOP) for Cattlemen
in a Drought
  • Wean early (60 doa)
  • Segregate and feed animals by nutritional needs
  • Cull cows
  • Precondition/stocker calves

BE LOOKING FOR WAYS TO CUT COSTS
17
Marketing Order
EQUITY
  • Open cows (old)
  • Open cows (young)
  • Unprofitable cows
  • Replacement heifers (in development)
  • Current calf crop
  • Marginally profitable cows
  • 3-7 year old cows

18
Effects of Cow Age on Productivity
BIF Adjustment Factors for Weaning Weights
(Steers)
19
Cull Unprofitable Cows
  • Yeah Buts
  • Must be able to match cows and calves
  • Based on average cow cost
  • Borderline young cows may get a pass

20
Cull Unprofitable Cows
  • Yeah Buts
  • Must be able to match cows and calves
  • Based on average cow cost
  • Borderline young cows may get a pass

21
Marketing Strategies for Cows and Calves
22
What Determines Cow Value
  • Percent Lean Meat Yield
  • Live weight

23
Marketing Classifications of Cull Cows
24
Cull Cow Economics
1,100 pound cow BCS 5 worth 55.00/Cwt.
605 800 pound cow BCS 3.5 worth 51.50/Cwt.
412 Difference
188
plus cost of feed
25
Cull Cow Marketing
  • When
  • Before October 1
  • What
  • Cows in good flesh (BCS 4)
  • Cows without obvious defects
  • How
  • Local market
  • Direct????
  • Live weight
  • Carcass basis

26
Increasing Income Calf Crop
  • Short-term backgrounding/creep feeding
  • Retained ownership
  • Stockering
  • Custom-finishing
  • Forward price part of your production

27
Forward Pricing Part of Your Production
  • Producers with 50,000 or more can use futures.
  • Can use video auctions either through local
    markets or other to forward price calves up to 90
    days.
  • Forward cash contract with order buyers and
    feedyards.

28
Longer-term Cost Considerations
  • May need to revisit stocking rates
  • Probably will need to reconsider pasture-mix
  • Cost/lbs. of protein or energy produced
  • Legumes may now make more sense
  • Cow reproductive efficiency
  • Cow cost
  • Longevity
  • Replacement heifer economics
  • Return to cross-breeding

29
Computer Decision-Aids
  • Alternative Feedstuffs Calculator
  • Marketing Alternatives Calculator
  • Budgets
  • Cow-calf
  • Stockering
  • Custom Finishing

WWW.GEORGIAFORAGES.COM
30
Tax Implications of Weather Forced Sales
  • Slides developed by
  • Keith D. Kightlinger
  • Farm Business Management Specialist
  • University of Georgia

31
Weather-Related Sales of Livestock
  • Special Income Tax reporting may be available for
  • Sales in excess of normal business practice
  • Caused by weather-related conditions
  • Drought
  • Flood
  • Other conditions causing a shortage of water
    and/or feed
  • Special rules depend on
  • Whether market or breeding livestock
  • Whether disaster declaration issued

32
Involuntary Conversion Internal Revenue Code Sec.
1033(e)
  • Applies to breeding, dairy or draft livestock
  • No holding period requirement
  • Does not apply to livestock held in the ordinary
    course of trade or business (Market Livestock)
  • Reporting gain postponed by purchasing
    replacement animals
  • Replacement period runs 2 years from end of sale
    tax year
  • Deferral of gain based on sale per head
  • No federal disaster declaration needed

33
Sec. 1033(e) Special Rules
  • Replacement period is 4 years if weather
    conditions lead to federal disaster declaration
  • Replacement period can be further extended by IRS
    in cases of on-going drought
  • Replacements must be like use
  • If sale conditions also make like use replacement
    impossible, replacement can be made with any
    property
  • No disaster declaration required to replace with
    unlike property if like-use replacement prevented

34
1 Year Deferral of Income
  • Election made under Internal Revenue Code Sec.
    451(e)
  • Applies to all livestock (market and breeding,
    dairy, draft)
  • Taxpayer
  • Principal business must be farming
  • Must use cash method of accounting
  • Weather-related conditions must also cause
    federal disaster declaration

35
Making an Election
  • Internal Revenue Code Sec. 451(e)
  • Election must be made by due date of return,
    including extensions, for the sale year
  • Election can be revoked, but cannot be made on an
    amended return
  • Internal Revenue Code Sec. 1033(e)
  • Election can be made any time during replacement
    period (2 years, or 4 years)
  • If election revoked, gain must be reported in
    year of sale

36
Animals Eligible for Either Election
  • Animals (breeding, dairy, draft) eligible for
    either election (Federal disaster declaration)
  • Special rules permit revocation of Sec. 1033(e)
    election and adoption of Sec. 451(e) election
    during 4-year replacement period
  • Allows election of one-year reporting deferral
    (reporting in year following sale year) on
    amended return
  • Permits avoidance of reporting in sale year if
    Sec. 1033 (e) election made, and replacement
    subsequently deemed impractical

37
Dealing With The Drought Summary
  • Keep in mind where we are in cycle Better to do
    good job with fewer cattle than HA job with a
    lot!
  • Cull all LIKELY non-productive mature cows (10yrs
    plus, open etc.)remember relation between
    nutrition and putting a calf on the ground.
    Keep the productive factory in place - 4 to 7
    year old cows.
  • If they aint growing, they need to be going!
    Can wean 60 days plus.
  • Put emphasis on things will get you more NET
    money Marketing, Management records
    (vaccinations, implants, feed products, etc.),
    Performance records. A SHARP PENCIL.
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