Financing your herd.

[Texan]

This topic has been dicussed many times and for some reason most of the hobby boys don't count the dollars. It cost for that tractor, diesel,truck,taxes,feed supplement, trailers, medical supplies, fencing, pens, fertilizer, hay, hay baling equipment, cattle losses and you will have some and so on and so on . You are not going to haul 25 calfs a year to the salebarn there will be abortions, black vultures,dogs, some that just seem to stupid to live. That is not counting a prolapse or a downer cow and pray the bull doesn't break his pecker or a thousand other things.

Good points, Caustic. I couldn't agree more. Never ceases to amaze me how many people think that having 25 cows means selling 25 calves every year. Also amazing that we will never have a downside to these record markets. Guess they've got a way to hedge their calves for $500 or $600 a head for the next four years? Obviously, they're good enough managers that they'll never have to sell any cheap calves like some of us have done---and like some of us plan on doing again.

 

[aplusmnt]

I am sure this is true that it is over estimated, but also by the same token a hobby farm does not always have to factor in those things.

I will use my situation for example, I have a Cleaning business, it pays for my truck (get tax breaks on business side) I have 130 acres, fences are there, grass is there, for years now all we have had is some horses and mules. I have paid for this with my Cleaning business, everything is in place rather I want to just keep my mules, Hunt the land only, I need basically to buy no truck, no tractor, no fences, these are things I pay for even if a cow never touches the place, that is what a hobby farm is I guess. Or maybe not a hobby but a side investment. If every cow dies, then I will still own the land and still hunt deer on it and still ride around on a 4 wheeler or Mule and never have one affect on my income or life.

In this situation if I borrowed to buy 25 head of cows, I would say it is a pretty sure bet (not guaranteed) but pretty safe that these animals would pay for themselves. Basically they have to pay for there up keep such as food and Medical, my cleaning toilets will pay for my truck, my land, my 4 wheeler, my horses and mules. Cows just have to feed themselves and pay for doctors visits.

If a cow can not feed itself and pay doctors visit then no one should be raising them. Part time/ hobby farms do not need them to do anything besides this.

I personally do not live in country to raise cows, I raise cows because I live in the country.

 

[Caustic Burno]

This is that screwed up accountant thinking.
My accountant said I needed a new tractor for taxes I could depreciate over 5 years.
By my math I have to pull 40,000 out of the bank to write off 8,000 which reduces my taxes by a few hundred dollars.
Wow I just spent 40 grand to save a few hunderd sounds like a dollar waiting on a dime.
If the fellow wants to raise cows go for it just go in with open eyes. You hobby boys amaze me.

 

[mwb]

Well let everyone know it works out for me.

 

[aplusmnt]

There is a bunch of screwed up accounting in business, actually that is probably the only thing that makes it worth owning your own business rather it is cattle, cleaning or whatever. The fact that due to accounting you can make well over 6 figures a year, live in nice house and drive nice cars, own land, and still show up at the end of the year as making an income below the poverty level.

Nice thing about us hobby guys is that if the cows go for $250 a head in future we will not loose the farm.

 

[Crowderfarms]

There is a bunch of screwed up accounting in business, actually that is probably the only thing that makes it worth owning your own business rather it is cattle, cleaning or whatever. The fact that due to accounting you can make well over 6 figures a year, live in nice house and drive nice cars, own land, and still show up at the end of the year as making an income below the poverty level.

Nice thing about us hobby guys is that if the cows go for $250 a head in future we will not loose the farm.

Not loosing the farm is a good thing, but playing your cards on using your land as collateral, for cattle financing is like playing with a Gun you thought was unloaded.

 

[aplusmnt]

I personally have not borrowed to buy anything in years, I try to pay cash for vehicles and everything, only thing I do owe on is my Farm. So I am a big advocate of pay with cash.

But depending on your secular works income and job security and over all bills. If I could afford to borrow and pay it back out of pocket with no income from cows I would not be afraid to borrow. Years ago I borrowed $25,000 to buy a ski boat, and it had no chance of paying for itself.

I would say there is a lot of different people with lots of different incomes on here. And lots of past experience. Basically they are all probably right, it just depends on your situation. Some could probably pay off 25,000 with out any problem at all with no income from cows. Others might have a hard time stretching their dollars to fill the propane tank this winter.

I would say rather you borrow to get started would depend a lot on which category you fit in. I would never want to risk my families home to buy some cows, but I would maybe risk a new truck or a big vacation to borrow to buy some. All comes down to the risk factor of you borrowing.

But I do hate to borrow!

 

[Caustic Burno]

It still cost to operate whether you pay cash for the tractor or borrow, or whether you hire it done. It still cost for upkeep and you will have losses.

Anybody that thinks it doesn't cost to upkeep a cow and the infrastructure that goes with her is heading to not being in the cow biz.

 

[Capt Call]

There is a bunch of screwed up accounting in business, actually that is probably the only thing that makes it worth owning your own business rather it is cattle, cleaning or whatever. The fact that due to accounting you can make well over 6 figures a year, live in nice house and drive nice cars, own land, and still show up at the end of the year as making an income below the poverty level.

Nice thing about us hobby guys is that if the cows go for $250 a head in future we will not loose the farm.

You are not making six figures in cattle unless you running the XIT or the King Ranch.

 

[Beef11]

my system of accounting seems somewhat different than mainstream. I am a big fan of vertical integration as well as horizontal integration, but i always keep my profit centers in tact and dont mesh them all into one as so many cattleman/farmers do.

 

[bgm]

my system of accounting seems somewhat different than mainstream. I am a big fan of vertical integration as well as horizontal integration, but i always keep my profit centers in tact and dont mesh them all into one as so many cattleman/farmers do.

No offense but, I must be a dumb old hick, what you said sounds like beancounter jibberish to me.

 

[Crowderfarms]

my system of accounting seems somewhat different than mainstream. I am a big fan of vertical integration as well as horizontal integration, but i always keep my profit centers in tact and dont mesh them all into one as so many cattleman/farmers do.

No offense but, I must be a dumb old hick, what you said sounds like beancounter jibberish to me.

Me too. I started to ask him to put it in Country Boy's terms.I thought we were getting measurements for a Plasma TV.

 

[Campground Cattle]

my system of accounting seems somewhat different than mainstream. I am a big fan of vertical integration as well as horizontal integration, but i always keep my profit centers in tact and dont mesh them all into one as so many cattleman/farmers do.

No offense but, I must be a dumb old hick, what you said sounds like beancounter jibberish to me.

Me too. I started to ask him to put it in Country Boy's terms.I thought we were getting measurements for a Plasma TV.

With all that vertical and horizontal I thought he was sighting in a rifle.

 

[mwb]

I'll say what I posted earlier in this thread...some people like me do this as a hobby. Making money would be great, but it's more about getting out by myself, working in the sun, working with nature, doing something other than sitting in front of a computer or TV in my spare time, etc. In addition, if I take a loan out and buy 25 cows and 1 bull and pay that loan off over 4 or 5 years, I FULLY expect my calves to make my payments for that loan. Of course if prices fall drastically then I am ready to make the payments out of my pocket...hopefully that won't happen, but if it does, no big deal. Now, as mentioned by many here, there are other costs involved that I need to consider: hay, gas, feed, vacinations, etc. Yes, I will need to buy feed, for example. Will my 25 cows pay for the loan, feed, gas, hay, and everything else? No, I don't expect it to. For a guy like me, I fully expect to have to pay for feed and other expenses out of my own pocket. Some would say, why waste your money? You could just throw that money into a savings account each month and be ahead. Well, the thing is, I wouldn't do that. I'd just spend that money on something else. Like the example above, maybe I'd buy a boat or something. But what do I get out of that? Fun yes, but an opportunity for it to make me some money one day? Of course not. So, I will have to put some of my own money into these cows. I know that. Am I truly making a profit then? No. But, I'm not spending my money on a boat, or on golf, or on some other thing where I see absolutely NO return on my investment. I look at my 25 cows as a forced-savings plan. Every month I will no doubt have to spend my own money on these cows, but I look at it as money that is going into something that I will get back over time. I look at it as a hobby that I will spend my money on. Some people spend $500 per month playing golf. Some people pay $500 per month on a boat. Some people spend $500 per month shopping at a mall. Etc, Etc. I choose to spend my money on my cows. Make sense? So with that in mind, I belive using a loan to buy my cows doesn't present a problem. We seem to be going around and around on this topic and I believe the answer lies in each of our indivdual situations. We are all in different places and we all have different reasons for being in this business. So, the answer to taking out a loan may vary from person to person.

 

[Z&J Cattle]

Extremely well put, MWB.

 

[bgm]

MWB,

The only caution I'd give you is one I've heard my grandfather give many times.

Everyone wants to be in the cattle business when prices are high, but it's the worst time to get into them. Prices could fall and you could be hurt.

What ever you decide, best of luck to you.

 

[mwb]

That is greast advice and the same exact thing applies to the stock market. No one wants to play the market when its down, but everyone wants in when it's up. Everyone buys high with high expectations and when it comes down, they sell out because of fear. Most people invest against logic. Buy high, sell low. That's why anyone interested in investing in the stock market should always have a long term outlook on it. It doesn't matter if you buy high or buy low, as long as you play the game long term. There will be great years, there will be terrible years. But long term , if you say in, you should grow your money quite well.

With that in mind, the same thing applies to the cattle business. I think you should look at it long term. Of course the returns may not be as high as the stock market! But for some of us, return on investment is not the only reason we do this. If I buy in now, I am definitely buying high. No denying that. If it comes down in two years, well I won't make as much on my calves. However, once my loan is paid off, and prices continue to go down, I would apply the same logic in this business as I do with the stock market: I would buy MORE cows. If it continues to go down after that, fine, I buy MORE. I'm going into this with a long term outlook. I'm 29 years old. I plan to do this as long as I am an physically able. Over the next 35 years, I'll see ups and downs. But as long as I keep a long term outlook on it, I'll be fine.

 

[Beef11]

Sorry about the "beancounter jibberish" vertical intergration is where you take on seperate enterprises that are in the same production line. land is probably the main one . One way or the other land is needed for a cattle operation but owning it isnt necessary and if you do own it you don't have to run cows on it you can always lease it out so it has a value tied to it. If i own my pasture free and clear, my cows still have to pay rent i use the price that i could lease it to someone else for. Hay is the second most popular vertical intergration. if You can sell your hay for 80 a ton it is worth 80 a ton (rocket science) so your cows should be held accountable for it. So when you look at your numbers at the end of the year you can tell where you made your money, if you made any at all. Horizontal integration is when you move into an enterprise that intersects your production line for instance becoming a dealer of livestock equipment squeeze chutes panels and the like. In country boy terms; If you can sell your hay and rent your grass out and dont have to pay interest on your note plus you can make money in your new found free time and in the end have more than if you were raising cows, The Cows arent making any money. Sorry about the jargen

 

[aplusmnt]

Mwb....sounds like you have a grasp on things and understand the ups and downs, I say go at it and have fun doing so!