To buy or not to buy

To buy or not to buy

ADVICE
Agribusiness
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There is a lot of fear around buying cattle in the current market.

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With good rain around in many parts, many of you will be starting to increase carrying capacity. For many this carrying capacity is greater than stocking rates due to lower numbers in recent years

So, should you go out and buy to increase numbers?

I'm hearing a lot of fear around buying in this market. One client referred to the market as 'insane' this week. There is a fear of buying. There is a fear of missing out. There is a fear of losing money. Above all, I suspect there is fear of simply having to spend more on an animal than you have had to, or heard of before?

Rather than staying in the fear of making a decision, here is a simple three question process I came across for deciding on a scenario. Let's look at the scenario of deciding to not buy.

Q1. What are the potential upsides (of not buying)? List them out for your circumstances. They could be less capital outlay, less worry about the market dropping, having more grass available for agistment or future trades. It could be that you'll sleep better? Just list everything that comes to mind.

Q2. What are the potential downsides (of not buying)? Again, just list them out. Being understocked during growing seasons means you won't stimulate grass and could have more rank feed (and therefore lower potential production in 2022). You'll miss out of free feeds during the growing season and the good weight gains that come with it. Each kg gained is worth pretty good money at the moment. You might be missing the chance to turn grass into money. You might lose sleep wondering what could have been. What is your list?

Q3. Can you live with the downsides? Look at your two lists and ask if you can live with/handle the downsides. Do the upsides outweigh the downsides?

What are you in the business of doing? In a grazing business you are growing grass, then turning that into money. Can you do that with someone else's animals via agistment?

Make a simple comparison. If you could get $7/week for agistment income on cattle, then your potential annual income is $364/head. Compare that to the gross margin on buying your own trade animals. Now change your assumptions to see how far your sale price and/or weight gain could drop by for your trade gross margin to be less than the agistment margin. How do you feel about the probability of prices or weight gains being less than that?

Whatever you decide, make the decision and write down your reasoning; this will help you sleep.

Enjoy your day.

  • David is chief of delivery running Grazing for Profit Schools and advisory work with RCS Australia. www.rcsaustralia.com.au 1800 356 004
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