Financing your herd.

[stocky]

Okmike, the bank that I do all my cattle business with is alot like the one that J&T is talking about. To buy permanent cattle it is a 3 year loan that I pay 1/3 of the principal and all the interest each year. They loan 65 percent of the initial purchase price of the cattle. I also have 4 lines of credit for buying cattle that I use to buy and hold and then resell. Each of those the interest is due at the end of each year and I am constantly paying down and reborrowing the principal.
Most banks want interest quarterly or monthly, I would stay away from them. They are the same ones that will cause you problems in case of a bad year. They are only out to bleed the farmer dry and dont actually want farm loans.
Only borrow what you can afford to pay back. I believe you will need outside income to make the cattle work. I also believe now is the most dangerous time in history to borrow alot of money on cattle. They are sky high and it wont last forever. There are alot of people who are buying 1200 dollar cows that are going to sell some 60-70 cent calves off those cows, but I sure hope I am wrong when I say that. Just speaking from experience.
I buy alot of thin cows and mixed cows and cows that are healthy but will never look worse. I dont want to pay another guy for getting the cow fat and sassy, that is my job. I try to buy cows that will pay for themselves with 1 1/2 calves at the most, it is hard to buy one that will pay for herself with one calf, but it can be done.
I buy alot of pairs with the cow already bred back, I raise the calf on her and sell it and then the next calf will normally more than pay for the cow. So, in general you can pay for the cow with the calf she has on her and half of the next calf. That doesnt include feed and interest. With all the expenses, 2 calves will pay for the cow.
If I pay 1200 for cow without a calf, it will take at least 3 calves to pay for the cow when you figure expenses and percentages.
The big key is not to pay the high price for the fanciest, prettiest or most popular animals. That is the sure recipe to go broke when the market breaks.
Good luck with whatever decision you make

 

[NewCowboy]

My mom and dad started me with 5 cows and 1 bull. I now have 10 cows and 1 bull. I sold 5 calves and bought three cows with that money. We also bought two more cows. I want to buy at least five cows a year. I am 11. So I figured by the time I go to college I will have about 45 cows if all goes well. My parents say that will start a good savings for me and help pay for things I need.

:cboy:

 

[TLCfromARK]

Banks are a necessary evil for most of us. That being said I agree with most of the posters here, don't try to get too large a operation at first.

Start small, grow into a larger operation as you learn the ropes & get a little time on the job because that's what it is, a job. As my old Dad says " It ain't all scratching calves & cashing checks".

A small loan to establish a working relationship with the bank you choose ( if you've got the cash to cover the loan and use it as security you should get a better rate ) can be a good thing. It can go a long way to securing a larger loan should a good opportunity arise in the future to buy cows, equiptment, land, etc.

Good luck,
;-)

 

[sidney411]

One of the best things you can do is establish a good relationship with your banker. I think I small time bank is a lot better then a national chain too. We bank at a smallish credit union that used to be primarily for dairymen but now does everything but leans to the agriculture side of things. It's great peace of mind to know that I could call him up and say I found 20 or so cows I wanted to buy and I could write a check and know the money would be there to back it. I don't think you could do that at a chain-bank. Just because you could save up and buy your cows a few at a time with cash doesen't mean that's the only way to do things.

 

[Brandonm2]

I also believe now is the most dangerous time in history to borrow alot of money on cattle. They are sky high and it wont last forever. There are alot of people who are buying 1200 dollar cows that are going to sell some 60-70 cent calves off those cows, but I sure hope I am wrong when I say that. Just speaking from experience.

I agree completely with that. I don't see how the consumer is going to keep paying for $8.5/lb steaks AND $2.50 gas AND $300 a month winter gas bills AND finance housing in a market where $200g won't buy a decent crackerbox in most desirable urban markets. Tyson Chickens at Wal-Mart are selling for just $2.5 to $4.5 a bird. I might be wrong; but consumers already tightened their entertainment belt by not going to movie theaters this summer and I think more belt tightening is coming as more supply is expected to come on line in the next six months and Australia owns our former export biz with Japan. I am on the sidelines (for the first time EVER) with no debt and a lot of land waiting to see what happens in 2-3 years.

 

[mcdowedd]

I was only able to afford 3 to start out..but at least I know that I am not in the red. Starting out small, but knowing that you do not owe money will save you many sleepless nights, and will ensure that anything you make will be strictly profit.

 

[okmike]

I also believe now is the most dangerous time in history to borrow alot of money on cattle. They are sky high and it wont last forever. There are alot of people who are buying 1200 dollar cows that are going to sell some 60-70 cent calves off those cows, but I sure hope I am wrong when I say that. Just speaking from experience.

I agree completely with that. I don't see how the consumer is going to keep paying for $8.5/lb steaks AND $2.50 gas AND $300 a month winter gas bills AND finance housing in a market where $200g won't buy a decent crackerbox in most desirable urban markets. Tyson Chickens at Wal-Mart are selling for just $2.5 to $4.5 a bird. I might be wrong; but consumers already tightened their entertainment belt by not going to movie theaters this summer and I think more belt tightening is coming as more supply is expected to come on line in the next six months and Australia owns our former export biz with Japan. I am on the sidelines (for the first time EVER) with no debt and a lot of land waiting to see what happens in 2-3 years.

That is pretty much my situation, I have the land now debt free, and enough of it to run about 50+ cows. I just want to get started. I understand that I will need outside income, I have a good day job to provide that, owning cattle is something that my dad did out here and I would like to follow suit. I will be looking to buy the pregnant with one by her side deal as that seems the best way to go. Is it possible to find them in as many as 12 - 15 together? I will also be looking to find a good small bank nearby to deal with, as much as I would like pay cash I am afraid thats just not possible right now. It would take me a couple years to accomplish that and I just dont want to wait. With the tax benefit I would receive now it doesnt seem like too bad an idea. You all have given me plenty to think about, thanks for the comments.

 

[RichieMaGoo]

My mom and dad started me with 5 cows and 1 bull. I now have 10 cows and 1 bull. I sold 5 calves and bought three cows with that money. We also bought two more cows. I want to buy at least five cows a year. I am 11. So I figured by the time I go to college I will have about 45 cows if all goes well. My parents say that will start a good savings for me and help pay for things I need.

:cboy:

You make more sense than half the adults on here! And when they're in the poorhouse, you'll still be doing O-K. Best of luck to you- you're parents are doing a great job!

I was only able to afford 3 to start out..but at least I know that I am not in the red. Starting out small, but knowing that you do not owe money will save you many sleepless nights, and will ensure that anything you make will be strictly profit.

Amen to that! There's nothning like owning everything free and clear (if it's not free and clear, we really don't own it)- and even if you seem not to havve as much as your neighbor, at least what you have is yours, and you probably don't need as much anyway, because life is less expensive and much simpler without interest and payments....and of course, there's that beautiful sleep!

 

[NewCowboy]

Thank you sir. I really like working with the cows. My mom says she hopes I stay that way when I am a teenager and that it will help keep me busy and out of trouble. But I don't get into much trouble really anyway. :cboy:

 

[Bama]

My mom and dad started me with 5 cows and 1 bull. I now have 10 cows and 1 bull. I sold 5 calves and bought three cows with that money. We also bought two more cows. I want to buy at least five cows a year. I am 11. So I figured by the time I go to college I will have about 45 cows if all goes well. My parents say that will start a good savings for me and help pay for things I need.

:cboy:

You make more sense than half the adults on here! And when they're in the poorhouse, you'll still be doing O-K. Best of luck to you- you're parents are doing a great job!


Could not have said it better myself. To many kids these days expect things to be handed to them. You will already have the upperhand on most everbody your age. Keep it up and you will go far in life.

 

[eric]

I guess I am in the minority here. While I do pay cash for my cattle and farm expenses, it is not a full time business for me. In my business, I always prefer to use the banks money for large purchases. I like to see my money in the bank, so it will be there when I get older or if I have an emergency nowadays. While the bank surely would require you to put up your house/land as collateral for loan, that's just more of an incentive for you to make a profit . Use your savings to make payments in the lean months when you dont have enough profit to cover the payment, but hopefully those will be few and far between. But at least you'll have the savings available if you need it.

Again, the best solution would be to start out with fewer cattle, say 10 bred / prs @$1200 ea., and pay cash up front for them, just dont drain the savings yet! You'd be amazed at how fast the herd wil grow for ya. 10 bred prs = 20 calves next spring / rebreed cows and 10 calves next spring/fall= 20 more in 2 yrs. It will add up quickly.

 

[bobrammer]

Don't do it. We started raising registered Angus a few months ago. You will be amazed at how much stuff you will need once you get started. None of it is cheap. Even if you buy used, you will be spending alot of money on equipment, feed etc.
Pay cash for everything if at all possible. Start small and let nature do the rest. As noted, 3 in 1 packages is the fastest
way to grow your herd. We have 7 now and hope we will be blessed with 3 - 4 calves in the spring. I know I would like to get everything now, but patience is a must unless you are independently wealthy. I read that something like 80% of AAA
members have herds of 10 or less head. God luck in your new venture.

 

[stocky]

When it comes to machiinery, dont buy it. The only machinery you will need for those cattle is something to feed round bales of hay. You can get a simple bale spike with a crank for the back of the pickup or if you have a tractor use a bale spike for it. The main thing to remember is that machinery is expensive to buy and to maintain and if you are starting with cattle, they wont pay for machinery. Buy your hay instead of borrowing alot of money for hay equipment. You can buy hay cheaper than putting it up and you will have more acreage for pasture instead of saving it for hay ground. Dont try to keep up with the neighbors with new machinery or you may follow them right into the debt hole

 

[Craig-TX]

Lot of good advice in this thread. There was so much good in stocky's posts that it would be too cumbersome to quote him. While there's money to be made off cattle bought on borrowed money, that only applies to the professional cow man. If you're doing it on the side or as a hobby, either pay cash or do without, for numerous reasons.

Like he said, they will only loan you 50-65% of what you will spend. But make no mistake about it, they will take a lien on 100%. A line of credit is only for the pro who is getting in and out, usually for trading stockers. A lot of banks will want interest paid monthly or quarterly, like he said. It might be a little harsh to say they are out to bleed you. It's probably more to do with them not being comfortable with ag loans or with a novice rancher.

The rest of stocky's comments about what type of animals and equipment to buy are also 100% on the money.

 

[mwb]

I'm new to this business and maybe that is why I do not understand most of the posts here stating that borrowing is not the way to go. the only example I have is of a close friend. He borrowed $25,000 4 years ago and bought him 25 cows and a bull. He has paid his loan off 100% with no problem at all. He doesn't own his land, but he pays $2,000 a year to lease it. Now, he owes nothing to the bank and he owns his 25 cows outright. What's so complicated about that?

 

[stocky]

mwb,
For my cattle business, I have always had to operate on borrowed money. As previously stated, there are ways to operate that have worked for me. There was also a way in 1980-85, with the horrible droughts and grasshoppers that broke almost every farmer in my area, my family included. Many lessons were learned. These people who have posted here have also learned from experiences. They may not all agree, but they all have very valuable experiences that have shaped the best policies for each of them. It is very dangerous for any of us to ignore the lessons that others have learned. I commend your friend for his good fortune in the cattle business. I would only urge you to consider that the last several years have seen, with a few short exceptions, a very steady rise in cattle prices and sustained record cattle prices the last few years. Never before in history have the record prices held like this. Imagine selling outstanding 600 lb calves for 45 cents per pound. This happened within the last 10 years. Fertilize prices are record high, tractor prices record high, pickup prices record high, and land prices record high. With all this, if you are over borrowed and those prices hit again, farming becomes a horrible nightmare instead of your wonderful dream. I would encourage you to research the wisdom of these people's experiences and learn from them and then, ONLY BORROW WHAT YOU CAN AFFORD TO LOSE.

 

[Ryder]

Well said Stocky.

 

[mwb]

Good points. I also wanted to say that I enjoy reading everything on this message board and I certainly am thankful for all the advice here.

I guess different people can have different view points of the financing issue depending on their circumstances. I feel that many of the people that have posted on this issue and feel that one should stay away from the bank are speaking from a view point of HAVING to make a profit to live. Then there are others who do not neccesarily NEED to make a profit and are just doing it on the side. If it takes 5 years before a profit occurs, so be it. From that person's standpoint, it seems like using the bank's money is ok.

For example, like me. I have a job. My wife has a job. I plan to buy 25 cows and a bull. In no way will I need the income from the cattle to live. I plan to use my income from my job to buy feed, and everything else I need. So, my plan is to have the calves pay my loan, the cost of my lease each year, and then the rest will go to taxes. If I am short, then I will pay taxes out of my own pocket. Long term, I would not want to go on operating like this, but of course when the cows are paid off in a few years, I won't. Some people say that if you are using your own income from your job to pay for feed and other expenses then you are just wasting your time with cattle because you could just put that money away in savings. But again, you have to look at it from the point of view from a guy like me...a guy who wants to do this on the side. Some people spend thousands of dollars on golf, others on boats and jet ski's. If my money is being "thrown away" on cattle that will one day be paid for and will turn around and pay me, then it makes sense. I look at it as a forced-savings plan. In other words, when I go to the feed store and buy cubes, that is money I probably would have spent on movies, going out to eat, and other junk I don't need. At least this way I am spending my money on something I enjoy doing and on something that will one day make me money. It may take longer than I plan, but I don't care.

The last post mentioned the issue of high cattle prices. That is a great point. You are right, its like buying into the stock market when its up and selling when its down. But again, the example I refer back to is my friend. He borrowed $25,000 and bought himself 25 cows and a bull. His annual payments were somewhere in the ballpark of $7,000 per year. He was making approx. $12,500 from his calves each year (obvisouly that varied, but I am using that as an average). Let's say cattle prices cut in half for some reason, and I am in that same situation...meaning, my payment is $7k annually to the bank. Well, I'd still be making $6 to $7k per year on my calves which would go to the bank. I'd have to pay taxes out of my own pocket, along with feed and everything else. That is fine with me. Why? Well, I know that prices will go back up someday and I am able to stick it out and still do what I enjoy doing. Of course I have to point out that is basically a worst case scenerio.

I guess what I am saying is, for some people, a profit is not always something that has to happen. Of course, I want to make a profit. And I belive long term, I will make a profit. If I have some down years, so be it. But in the long run, I am confident I will make money. Especially when my loan is paid off. Some people would say this is crazy...to throw money away on cattle that are losing you money. But I say, does throwing your money away on golf, boats, jet ski's, whatever, ever make you money? No it never does. But putting your money into cattle will one day be a way to generate residual income for yourself in the future eventhough you may not make a penny for a few years.

 

[Brandonm2]

The Lord knows that I am tight with a nickle; but I think that high prices is NOT really a reason NOT to buy cows. Sure none of us can remember 600 pound heifers selling (for beef) at $610 a head (using Cattle Today's current Alabama price) But in the LONG TERM is it really going to matter if we got into the business with $350 heifers?, $610 heifers, or paid a premium and bought $1100 heifers? If you figure the productive life of a typical cow at 11 years the cost per cow per year is only $32, $56, and $100 a head per year BEFORE you calculate in the salvage value on the cow (people who bought commercial cattle 10-12 years ago are actually recovering twice the value out of their old cows than they had in them). IF you have the coin and (most imporatantly) the grass and you believe you have the knowledge, time, finances, and other resources to make money in the cow business I say GO for it!!

 

[dun]

The Lord knows that I am tight with a nickle; but I think that high prices is NOT really a reason NOT to buy cows. Sure none of us can remember 600 pound heifers selling (for beef) at $610 a head (using Cattle Today's current Alabama price) But in the LONG TERM is it really going to matter if we got into the business with $350 heifers?, $610 heifers, or paid a premium and bought $1100 heifers? If you figure the productive life of a typical cow at 11 years the cost per cow per year is only $32, $56, and $100 a head per year BEFORE you calculate in the salvage value on the cow (people who bought commercial cattle 10-12 years ago are actually recovering twice the value out of their old cows than they had in them). IF you have the coin and (most imporatantly) the grass and you believe you have the knowledge, time, finances, and other resources to make money in the cow business I say GO for it!!

Part of my thoughts on the high price of cows and buying know goes along the lines of at least you're buying while the product of that cow is higher also. Even if it does go down, and it will, the difference in value of a $900 cow selling a $600 calf and a $600 cow selling a $400 calf isn;t really all that significant when it's spread out over multiple years.
But I never have been a whiz at finance and rarely can not find justification to buy a good cow or heifer.

dun