Advice on value of beef opportunity

[Mark T]

A neighboring farmer is cutting back due to age. He called this evening with an offer - I have been looking to scale up my small organic operation.

He will let me take over a lease on a farm of about 100 acres with 80 acres in pasture. The whole farm is fenced with woven wire. I would have to put in a fair amount of internal subdivision electric wire since I do MIG - my home 9 acres is subdivided in 1/4 acre paddocks. Farm lease is $2500/year due in one payment on April 15 of each year.

Along with the lease, he will sell me part of his herd.

20 charlais cows, average age 5-8 but going up to 10 years - he has been moving heifers to another farm. I am a bit concerned about the age but he does have a reputation for having a good herd and genetics.
12 calves on the ground now 3-10 months old.
Mature registered herd bull.
Young replacement bull 16 months old.
1 18 month old heifer - may or may not be bred.

$20,000 for herd. He estimates that the calves would bring $7,000 come Spring through the sale barn - but I could do better if I can expand my beef client list that quickly (I have been getting $2/lb liveweight for holstein steers). The $20,000, to my non-sale barn ears, sounds a bit high - Angus cow calf pairs have sold locally for $900-1100. Charlais is rare around here so don't know how they would compare. If an older cow didn't breed I don't imagine her cull value is that high and some people have said to avoid deals where your expense and the cull value are too far apart.

He also has 200 5x5 round bales stacked in the farm barn ready to feed this winter and will sell that for $2000. Since I paid $30 a bale for the round bales in my barn, this sounds very good.

I have no tractor (why would I need one with 9 acres and only 1 cow to overwinter?), so would need to get a tractor to feed that many round bales. He will sell me his John Deere 2150 with loader, hay spike, and bale unloader for $14,000. I have never looked into tractors so have no clue about models. Any gearheads want to weigh in?

Basically, $36,000 gets me into the cow/calf business. I was not looking to get that big so fast - I sold seven steers (500 lbs) and six hogs (300 lbs) last year and turned away customers. If I could find more grazing land I thought I would jump to ten or twelve steers in the Spring. I could definitely sell 24 sides - but selling 40 sides would be harder. Not impossible, but I would have to step outside my comfort zone and market. If I found other land and went with holsteins steers again I could buy my animals out of the profits from last year and have no debt. I would have to borrow $30,000 to do the deal and then a bit more for interior fencing and other supplies.

I want to do more farming, but the risk of borrowed money scares me. I have inherited a strong risk aversion from my father. Of course, I asked my Dad last week how his brother was able to handle the risk of being a dairy farmer. I thought his response was interesting: "Well, after surviving wading ashore at Iwo Jima and having a Japanese 50 cal bracket his legs, the risk of a drought year fell into perspective." Intellectually I see this, but still have knots in my stomach thinking about a farm loan.

Any advice would be appreciated.

[rambler]

That sounds like a very interesting deal.

Are you leasing the land _from him_, or is this land he leased & you will be a 3rd party? Only thing you left unclear.... If you put in sub-fencing, how long is the lease for. Typically need to do any improvements before subfencing, such as lime, P, K, & reseeding if any of that is needed. Anyhow, easier to do first.

Only you know what you can handle, what you want to do. Sounds like it is the direction you wanted to go.

Such package deals usually only come up once or 2x a lifetime.

Are you going to kick the bonkers out of yourself 5 years from now for passing it by?

If you can only sell 20 sides, is there a realistic 'regular' market to take the other 10 cattle at break-even at least?

Good luck with your difficult, but good to have, decisions to make...

--->Paul

[uncle Will in In.]

Your success depends on two things that you didn't address. You can't stay in business without his ground, and hopefully barn and water source. You need a extendable lease gaurenteed.
His prices sound within reason (IF) cattle prices remain near present levels. If you can get him to finance you on contract at an interest rate lower than the lending source you may be looking at would save you money and probably make him more than bank interest on this money. Lease his tractor by the hours shown on the tach for a year or two. This would lower you debt load. Talk to John Deere dealer about rates.
Black calves sell higher than charlois at the auction.
There are no sure things with farming but nothing ventured, nothing gained.

[Bearfootfarm]

http://www.tractordata.com/td/td117.html

They havent made that tractor since 1986 and it sold for $17,000 new. That doenst mean its not worth it but for that money there are lots of other ones available. I move my large bails with a 1954 Ford NAA. You can get one of those for $2500-4500 depending on how pretty it looks.

http://www.traderonline.com/

You can research tractor prices (and lots of other stuff) at this site

[haypoint]

Do the math. I don't know your area, but some of your information causes me to wonder. 20 cows but only 12 calves. That's a problem. Think about the fact that the heifers aren't included in this "deal". $10 a bale for everything he's got seems high, but the $30 you paid for one sounds crazy. Was that a delivered price for the single bale? Hay is a lot cheaper in my area. Why the wide range in age of the calves. They should all be around 8 months old, older if you live below the northern line of the corn belt. Could it be that he was having some trouble getting them to "settle"? Any statement as to the calves worth in the spring is just conjecture. No one knows what they'll weigh and the going price six months from now. That's way more bull than you need to cover 20 cows. For the feed of the registered one and the replacement, you could get a lot of AI straws and get lots better genetics.
Why would you be selling 300 pound pigs? That's 65 pounds over normal market weights, generally just putting on fat beyond 235 pounds.That $2.00 a pound for holstein steers, what weights? Decons, week or two old sell for that much, but by the time they get around 800-1000 pounds, the market price is closer to 72 cents a pound, liveweight.
Does this $2500 pasture rent include a water source that would be available to all your internal divisions?
www.tractorhouse.com has listing for tractors you could use to compare, but you need to know how many hours is on this tractor.
I've had lots more sucess growing a product that i have in marketing them. With reasonable marketing skills you should be able to stur up more buyers, use current customers to spread the word. May take more time and effort than the raising, but once you get a following, you should be able to maintain those numbers. Just remember the rules of selling: "People don't get off their billfold until the last moment." I had luck selling pigs by "pre-ordering". I had people reserve a pig for Fall butcher by paying $40 in the Spring. I ran a line of credit at the feed mill. In the Fall, hired an expert to kill and skin my group of 10-15 pigs. I'd take them to the butcher and weigh each one and assign a name tag to each. I figured my labor and the bill at the mill, divided it by total hanging weights to figure the costs to my customers. They paid that figure times their pigs hanging weight. Any thoughts of not paying were put in check by the $40 prepayment. I'd get my hog free, paid for my labor, free manure and had little out of pocket risk. You could do this with the cattle. Not much margin selling thru the local livestock markets.

[Jennifer L.]

Go for the cows, hay, and the farm, pass on the tractor. That's more than you need when you are just getting started and any older tractor will do the job for you. Although I do wonder where you are going to get your hay next year? Do you have enough hay ground?

I'd say the whole thing is not a bad deal.

Jennifer