Beef Cow Strategies Under Drought Conditions

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Beef Cow StrategiesUnder Drought Conditions

• May 2003
• Tim Petry
• Extension Livestock Economist

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Web Address
www.ag.ndsu.nodak.edu/aginfo/lsmkt/livestock.htm
Click on the Presentations button, then Beef
Cow Strategies Under Drought Conditions, May 2003
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Should cattle producers try to maintain a base
cow herd?

• price outlook?
• your retirement plans?
• low equity vs high equity?
• talk to your lender
• disaster assistance?

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Livestock Marketing Information Center
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CHANGE IN BEEF COW NUMBERSJANUARY 1, 2002
TO JANUARY 1, 2003(1000 Head)
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Livestock Marketing Information Center
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• The highest cattle prices usually occur during
  the accumulation (rebuilding) phase of the
  inventory cycle.
• When that occurs will depend on weather, but
  should be in the next several years.

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Strategies

• Control 2003 Beef cow-calf enterprise budget
  based on normal weather
• Early Weaning
• Alternative 1 Graze small grain crops, hayland,
  and/or CRP on or near the ranch
• Alternative 2 Haul cows and calves to leased
  pasture in non-drought area
• Alternative 3 Drylot cows and calves with
  purchased feed
• Alternative 4 Sell cow-calf pairs in July, buy
  bred cows or cow-calf pairs next year

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Additional Feed Costs for Early Weaned Calves,
/head
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Alternatives 1, 2, and 3 will all require higher
winter feed costs. Assumption winter feed costs
will increase 50 over control. 65
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Alternative 1Graze small grain crops, hayland
CRP

• 65 increased winter feed
• 15 for 1 ½ months CRP (July 15 August 31)
• Temporary fencing available1/cow

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CRP

• 1985 law no haying or grazing except for
  declared disaster
• 2002 law managed haying and grazing allowed.
• 1. not to exceed once every three years
• 2. reduction in annual payment
• 3. must have approved CRP conservation plan
• State committee is currently making specific
  rules.

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Alternative 2Haul cattle to leased pasture

• may be difficult to find
• 200 mi one way
• 90 cow-calf pairs19 replacements
• 3 potloads, 2.75/loaded mi
• 10/Acre pasture lease

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Alternative 3Drylot cows and calves with
purchased feed

• Traditional hay/barley ration used
• Alternative rations should be considered

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Alternative 4Sell cow-calf pairs, buy back next
year

• very difficult to quantify because estimates must
  be made for
• price of the cow-calf pairs when sold
• price of bred cows next spring(or pairs next
  summer)
• cost savings for no cattle from July 15 March
  15 (June 15)
• potential availability of bred cows with a
  similar age, quality, and genetic base is very
  questionable

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IRS Tax Issues forLivestock Sales in Drought Year

• Source IRS Publication 225, Farmers Tax Guide,
  2002
• Two Issues Postponement vs. forgiveness
• 1. Income from any livestock sold abnormally
  early may be postponed for tax purposes until the
  next (normal marketing) year.
• Example Normally, you background feeder calves
  and sell in February. Due to drought and lack of
  feed, calves are sold in October.

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• Income can be postponed if
• principal business is farming or ranching (IRS
  def 2/3 of income generated from farm)
• cash method of accounting
• prove sale occurred because of drought
• an area (not necessarily your county) must have
  been designated for federal assistance
• specific information must be attached to tax
  return in year of sale

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• Breeding, dairy, and draft livestock sales due to
  drought (or other perils) may be treated as
  Involuntary Conversion
• Gain does not have to be reported if the same
  number and kind are repurchased by the end of the
  2nd full year after the drought sale.
• Example Normally you cull 15 cows, but in
  drought year 25 cows are sold. Only, the
  additional 10 cows are eligible and must be
  replaced.
• If 2 years elapse without repurchase, a 1 year
  extension may be filed, but is not guaranteed.

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• Tax return in year livestock are sold must
  contain
• documentation of drought conditions
• exact number and kind of livestock
• amount of gain
• Tax return in year livestock are repurchased must
  contain
• date of purchase
• number, kind, and cost
• like kind must be replaced
• Example beef cow with beef cow, not dairy
  with beef cow

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• Presidential declared disaster exception
• like kind requirement is waived
• any tangible replacement property used in the
  business is eligible (a tractor can be purchased
  instead of beef cows)
• A bill was introduced then attached to the tax
  cut bill to extend the time limitation from 2 to
  4 years.
• Passed the House on March 19
• Passed the Senate on May 15 (51-50)
• now in conference committee

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Summary

• feeder cattle production will be profitable for
  several years
• choices are extremely difficult
• determine what your alternatives are
• discuss alternatives with your lender
• hope that rains continue
• how can we help?