Financial Thresholds

[RazorbackRed]

Folks-

I am Brand new to the board. Have enjoyed reading many of your posts and have learned a lot. I am about to enter the cattle business and have two great mentors that have been teaching me the business. They have a combined 90 years of experience in running cattle in eastern oklahoma and western arkansas. I have been working closely with them for about 3 years and feel like it is time to get involved. They currently run about 250 mommas, and seem to do well. More than anything they enjoy the work, and that enthusiasm as rubbed off on me. They have been open and honest about all of my "stupid" questions.

That being said, when I try to pry into the financial side of the business, they take the "ole cattleman's" stand and tell me there is no way to make money in cattle, don't worry about the money...blah blah blah. I know this is ridiculous. they aren't doing this for fun first and foremost.

I am looking to buy 5 pairs to start with, using their Charolias bull to service.

My question is this. Can yall give me some rule of thumb in terms of a threshold you use to determine if you are making good profits? For example, I have heard that I can count on the profit on 1 out of every 5 calves sold goes to expenses.
I can't get a straight answer on what the goal is? I realize there are a million variables that determine wether or not you make money, but I wonder what you use a rule of thumb?

Thanks for your time.

 

[jkwilson]

With a small operation, there are no profits. The fixed costs don't have enough animals to divide out across to make any money. If you have the vet out to preg check 100 cows, and he charges $50 for the trip and $5 per cow, you pay $5.50 per cow. For 5 cows, you pay $15 per cow. Other things like feed, hay, wormer etc. you buy in such small quantities, you pay through the nose for when you are a small buyer.

The big killer is time invested. It takes roughly the same amount of time to check water, check for calving etc. for 5 cows as it does 50, but the money isn't there. Most small operation guys could clear more money at Walmart dragging carts in from the lot than they do on cattle, with much less time invested, and you'd never get kicked, have snot blown in your face or get covered in cow $h!+.

I'm not saying don't do it, I'm saying don't do it for money.

 

[bullred]

With a small operation, there are no profits. The fixed costs don't have enough animals to divide out across to make any money. If you have the vet out to preg check 100 cows, and he charges $50 for the trip and $5 per cow, you pay $5.50 per cow. For 5 cows, you pay $15 per cow. Other things like feed, hay, wormer etc. you buy in such small quantities, you pay through the nose for when you are a small buyer.

The big killer is time invested. It takes roughly the same amount of time to check water, check for calving etc. for 5 cows as it does 50, but the money isn't there. Most small operation guys could clear more money at Walmart dragging carts in from the lot than they do on cattle, with much less time invested, and you'd never get kicked, have snot blown in your face or get covered in cow $h!+.

I'm not saying don't do it, I'm saying don't do it for money.

Very well said, JK.

Razorback, I would only add that even though it is very hard to maintain a positive cash flow with a small operation (primarily because of the reasons JK listed above) that doesn't mean you shouldn't operate it as a business. In fact, if you are planning on taking advantage of the tax benefits, you are compeled to operate it as a business rather than a hobby.

A few weeks ago there was a very lengthy discussion of average operating cost for a cow/calf operation. As a (very loose) rule of thumb, a responsible operator is going to have a cost basis of about $1.00/day per brood cow. This doesn't include any depreciation, or cost of labor. A larger operator can take advantage of the economies of scale in order to bring that down. And conversely a smaller operator is going to be spending much more because of the various inefficiencies.

This will give you a rough idea of where you'll be starting, but maintain your own meticulous records and let us know what you come up with. Welcome aboard.

 

[Running Arrow Bill]

When you're running "commercial" cattle that sell "by the pound", it is difficult (if not impossible) to make any money with a small herd...one does it for the lifestyle... On the other hand, running a registered seedstock herd that you sell the cattle "by each", you have a much better chance.

As a very rough cost estimate: Figure $350 to $500 a year for each 1000# animal unit to cover feed, hay, mineral, water, vaccinations, any Vet expenses, insurance, etc. You should have one calf per year, per female. If you don't have your own bull, you add A.I. charges to that (if the A.I. didn't take, then you need a "clean-up" bull to cover the cow so you don't lose one year's calf).

If you land is paid for, your GOOD fences and working facilities are in place and paid for, then you stand a chance to make a few bucks. As a start, buy a bred cow with calf at side (3 in one package) to give you a running start.

Considering the care cost for a cow during her pregnancy and calf nursing up to weaning (about 15-16 months from conception to weaned calf), the sale barn per pound price had better be very good to even break even. [This is why we only do registered stock...get several times the sale barn prices].

Also, don't discount the benefit and value of slaughtering one of your steers (or bulls) for your own freezer: ~45 to 55% of live weight X average supermarket price for all the cuts you have packaged.

 

[RazorbackRed]

Thanks for the advice.

A few points.

First, I have a bit of an advantage as my cows will be placed with my mentors cattle, so the land is basically free, and i will pay a pro rated % of his feed bill. This year has been brutally dry so he has been forced to buy hay to get them through the winter. I understand that these unavoiable expense arise from time to time.

Second, I realize the concept of economis of scale, and I realize that with a small operation the fixed costs are hard to overcome, however I look to expand over time, with help in the decision making process, so that my growth is based on sound cattle fundementals and not just growth for growths sake.

Third, I also have another advantage that the bull I will be using is a known commodity, and has delivered 100's of calves to multiple breeds of cows. A proven producer.

Fourth, I can always use the money, but i don't NEED the money, and I have time. I am willing to accept the start up costs in the hopes of becomming a consistent profit maker in years to come.

Lastly, I enjoy the work. It is therapy for a guy who works in a high pressure business environment and is locked inside most days. I am a 4 handicap golfer, and I would rather spend a day watching the new calves run and buck, than shooting a 75 at the local golf course. I sense the unmistakeable pride and devotion that I see in my mentor, when he looks across his herd. he has an intimate relationship with each one. he knows them all and he knows their heritage. It is a neat thing to be witness, and something I long for.

Thanks for the insights.

 

[bullred]

Thanks for the advice.

A few points.

First, I have a bit of an advantage as my cows will be placed with my mentors cattle, so the land is basically free, and i will pay a pro rated % of his feed bill. This year has been brutally dry so he has been forced to buy hay to get them through the winter. I understand that these unavoiable expense arise from time to time.

Second, I realize the concept of economis of scale, and I realize that with a small operation the fixed costs are hard to overcome, however I look to expand over time, with help in the decision making process, so that my growth is based on sound cattle fundementals and not just growth for growths sake.

Third, I also have another advantage that the bull I will be using is a known commodity, and has delivered 100's of calves to multiple breeds of cows. A proven producer.

Fourth, I can always use the money, but i don't NEED the money, and I have time. I am willing to accept the start up costs in the hopes of becomming a consistent profit maker in years to come.

Lastly, I enjoy the work. It is therapy for a guy who works in a high pressure business environment and is locked inside most days. I am a 4 handicap golfer, and I would rather spend a day watching the new calves run and buck, than shooting a 75 at the local golf course. I sense the unmistakeable pride and devotion that I see in my mentor, when he looks across his herd. he has an intimate relationship with each one. he knows them all and he knows their heritage. It is a neat thing to be witness, and something I long for.

Thanks for the insights.

Well now, I was willing to talk to you and help you until you had to go and throw out that 4 handicap business!! Now you're on your own!

Bullred (24 handicap) ;-)

 

[RazorbackRed]

Well thats what happens when you never go to class in college.
I noticed a direct correlation between my GPA and my USGA handicap. Low handicap means low GPA.

I wasn't trying to toot my own horn on that one, just explaining how much I enjoy the cows.

 

[holly heifer]

:lol: You are so right in the plain and simple fact that this
cattle business for the small guy is usually a not for profit
endeavor. :nod: But::::: the feeling one gets after an unusually long and hard delivery-- to see that newborn calf
suckle his mom--- is priceless. The peace and content one
experiences as he or she watches the girls and their calves
grazing in the warm spring breeze. The pride of having a good
bull that sires consistant nice fast gaining calves. The joy
of getting top dollar for your feeder calves, knowing that this
is the fruit of all your hard labor( and i mean HARD! ). So what
if you sold them to pay for all the hay! :roll: I did this, I get
up every morning at 4:30 am to care for my bovines, I have
witnessed the miracle of birth, the finality of death, searched
the woods for the calf that"didnt come up." Carried in my arms
through the March snow a calf too weak to make it on his own,
Chased the nasty cow that tried to kill me into the loading
dock-- she is outahere!!!! Yea, it is a thankless job, the hours
are long and neverending ( 24-7) I have been so cold i cold
die and so hot I could explode. But you know what? I would not trade it for anything in this big ole world! :heart:

 

[Emgen]

I'm relatively new to the "cattle business" and do not pretend to be classified as a cattleman. However, I have a few excellent mentors and I've been able to make a few gains.

I bought a 2nd home with 70 acres and decided to try my hand at cattle. Clearly my fixed costs could not be offset by a small operation, however, investment in land made sense with or without cattle. Herd is a work in progress but will have 25-30 stocker cows and an angus bull.

Progress - Cattle operation will be cash flow positive during my second year based on projected # of calves. Cash outlay for most Cows and Bull was in '05 and operating expenses are very visible (medical, feed -if any, transport, etc) and relativley predictatable if you have quality grass/hay. Without quality pasture I do not believe you can expect to make money in a cow-calf operation. Farm is in excellent shape and I expect very little in the way of maintenance for '06. Price for 350-450 lb calves is very high and I am pleased with recent sales. I enjoy what I am doing and like the challenge of generating cash from a tough business.

Pitfalls
- Small operations can not overcome significant medical issues or lost animals
- Manage time wisely or you will be forced to come out of pocket unexpectedly
-Smaller operations are typically at the mercy of the local markets (price and volume demands)
-Without access to a cowman to guide and assist in medical treament, vet bills will jeopardize + cash flow
-unfavorable weather = cash drain

I have been relatively sucessful by starting with bred cows. Less costly than most pairs and cash can be generated in less than 5 months. From personal experience, I've found pairs to be less cost effective than bred cows.

You can certainly generate + cash flow with a small operation - manage wisely and you can expect to make gains but be careful not to depend on them as any material setback will be difficult to ovecome.



Regards

 

[Emgen]

:lol: You are so right in the plain and simple fact that this
cattle business for the small guy is usually a not for profit
endeavor. :nod: But::::: the feeling one gets after an unusually long and hard delivery-- to see that newborn calf
suckle his mom--- is priceless. The peace and content one
experiences as he or she watches the girls and their calves
grazing in the warm spring breeze. The pride of having a good
bull that sires consistant nice fast gaining calves. The joy
of getting top dollar for your feeder calves, knowing that this
is the fruit of all your hard labor( and i mean HARD! ). So what
if you sold them to pay for all the hay! :roll: I did this, I get
up every morning at 4:30 am to care for my bovines, I have
witnessed the miracle of birth, the finality of death, searched
the woods for the calf that"didnt come up." Carried in my arms
through the March snow a calf too weak to make it on his own,
Chased the nasty cow that tried to kill me into the loading
dock-- she is outahere!!!! Yea, it is a thankless job, the hours
are long and neverending ( 24-7) I have been so cold i cold
die and so hot I could explode. But you know what? I would not trade it for anything in this big ole world! :heart:

Well spoken.

 

[TheLazyM]

you dont have to buy small lots just because you have a small operation. alot of medicines last a few years you can buy in bulk and use as you need it. you can build your self a feed shed and buy your feed in bulk and safe pennies here and there. for me the key is not running my small operation like its a big operation. i've suited it to make money like its a small operation. i believe if you try to run it like its a big ranch your going to lose your arse. we've got to think alittle different, and stretch every penny into a nickle. you can buy in bulk and sell some to over balance the cost. most times i end up making money and get my supplies free. of corse this does always work out but most times it does. and sometimes it's just more of a pain in the arse than to deal with. what ever it takes to make my farm make money. at work i can buy sweet feed for $2.50 a bag if i buy 7 ton at a time. i'll sell it around the house for $4.00 a bag. i just made $210 if i sell the whole 7 ton. that clears me for 84 bags for myself for free. to a small operation 84 bags of feed goes a long way.

 

[jkwilson]

I bought a 2nd home with 70 acres and decided to try my hand at cattle.

Progress - Cattle operation will be cash flow positive during my second year based on projected # of calves. Cash outlay for most Cows and Bull was in '05 and operating expenses are very visible (medical, feed -if any, transport, etc) and relativley predictatable if you have quality grass/hay.

Price for 350-450 lb calves is very high and I am pleased with recent sales.

I assume you are familiar with the old saying about counting your chickens?

Just don't forget that your are pouring cash into this in the form of what you paid for land. Being cashflow positive doesn't really mean much unless you consider how long it will take to pay off the initial outlay for the first year.

High cattle prices are a few times in a lifetime kind of thing. Don't get used to it.

 

[TheLazyM]

Just don't forget that your are pouring cash into this in the form of what you paid for land. Being cashflow positive doesn't really mean much unless you consider how long it will take to pay off the initial outlay for the first year.

i dont know if this is how your meaning this, but more than a few times i've read people throwing the cost of land up. which is a real world figure. i only figure it year to year, not the over all. what i made on my cattle minus the land payment type thing. i would wish that just this sum would be a negative number but it never is.

 

[Howdyjabo]

" i only figure it year to year, not the over all. what i made on my cattle minus the land"

You had better be putting that money you are making into savings or pre-pay extra months on the loan-- unless you have another source of income to make the payments-year in year out..

These have been some VERY good years-- probably the best and longest stretch I can remember.
Its not gonnna last forever..........

Also you need to be bankrolling for the future-- what if your fences will need major repairs in 10 yrs.The ten yrs old truck broke down and the axels fell out from under the trailer. Every Ten yrs count on having to do major spending just to keep even with what you started with. And thats wether or not calves are selling good then......

This is a VERY risky business unless you go itno it with the land already paid for. And then the only finacial up side to count on is that your taxes are lower so you can afford to live on some acreage.

Small opperators main goal ishould be to get debt free as soon as they can-- otherwise its only a matter of time before things WILL snowball- and you'll loose control and probably the farm.
Live dirt poor till there is no debt-- then you got a shot.

 

[lukem86]

maybe this has been touched on already and i missed it...

but I myself am getting started and a lot of things I am reading and heard are advising that now might not be the best time to be buying a lot of cattle... cattle cycle is at a high right now, so you will most likely be buying high and selling lower due to the way the cycle works...

I'll probably get sneered at hissed at for this on this site....but for a small operation or "hobby herd" why not direct market the product. You should be able to track costs relatively easily, set your own price and get out of it what you want.....

The other thing that has become very apparent to me, and maybe this is a given, but larger animals a probably not as profitable. Im feeding some simmentals that are over 1400 lbs plus... its awfully expensive to feed them... so much more of what you feed everyday is going to basic body maintainence and fxn.... the sooner I can get rid of these large cattle at these high prices the better...

just my thoughts...