Loan or grow?

[Stocker Steve]

I enjoy cattle but the money is not good enough to be stressing over paying a loan back.
I would take out a loan and invest it in the stock market before cattle. It has the same risk and WAY more reward.

The bank will finance you because you cash flow. Often in production ag this means a big down payment, or outside income, or both. But cash flowing does not mean you are profitable. Profitability is your problem, not the banks.

The good news is that there is a very very wide variation of profitability in cow/calf operations. So you need to find some profitable examples, and then copy them, if the risks and rewards are acceptable to you. :cowboy:

 

[Stocker Steve]

Keep in mind that 90% of guys here are retired or have a job (myself included), won't have to borrow it all. Those that ranch for a living are either highly leveraged or inherited :2cents:

Does the Gordon Hazzard model still work today?

 

[RanchMan90]

https://youtu.be/F6pgsttuTBA Maybe this will help clear things up. I highly recommend Gordon's book also.

 

[Brute 23]

I just watched some of his videos and he makes good points and I admire him for getting people to think about calculating profit but his "all or none allocation cost is bs".

 

[Brute 23]

I enjoy cattle but the money is not good enough to be stressing over paying a loan back.
I would take out a loan and invest it in the stock market before cattle. It has the same risk and WAY more reward.

The bank will finance you because you cash flow. Often in production ag this means a big down payment, or outside income, or both. But cash flowing does not mean you are profitable. Profitability is your problem, not the banks.

The good news is that there is a very very wide variation of profitability in cow/calf operations. So you need to find some profitable examples, and then copy them, if the risks and rewards are acceptable to you. :cowboy:

Ya... those that factor in their labor costs and those that don't. :lol:

 

[Stocker Steve]

Good posts. I like to use the U of Kentucky "Bred Heifer Profitability" spreadsheet. In my numbers cow depreciation becomes a huge deal - - so recently I have been rebalancing my "stocking rate" by selling some (common) stock and buying back some (cattle) stock that can appreciate.

Once you have confidence you can consistently make a profit then a little leverage is a good idea. :cboy: I was pretty confident till 2015/2016. Bud would say I was not making enough turns.

 

[Coosh71]

I have read every post in this thread and really enjoyed reading it all. There's a ton of knowledge on this site and that's why I enjoy it so much. There are successes and failures in either approach you decide to take (loan vs grow slow). I agree with one post that sticks out to me, about growing slow and learning as you grow. It's much easier to swallow losing 1 or 2 head because of a blunder vs 25. A neighbor bought 50 hd of nice Black Angus bred heifers a few years back just a couple months before prices took a big drop. With what he paid for heifers vs his return in first calves (with a lower market) and the loss of 12 that didn't breed back he was pretty deflated. He paid his bank not but it was a wash. Took 3 years to make it pencil out right. Also after 3 years he had 29 of the original 50 remaining in his herd. I guess my take is that if he had bought (with cash) 10-15 mid aged cows/year, he would have been a whole lot better off after those 3 years.

 

[bird dog]

I guess my take is that if he had bought (with cash) 10-15 mid aged cows/year, he would have been a whole lot better off after those 3 years.

Gaining experience is expensive in this business. You can save a bundle learning from other peoples screw ups. Stay with it long enough and you will have your share of stories to tell someone else how dumb you were. No one is immune from the dumb mistake disease.

 

[Jrebyank]

I have decided not to take out a loan. I will just continue to buy a few cows/heifers per year and keep what I can. Thanks for all the advice I really appreciate reading and learning from people all over the country.

 

[True Grit Farms]

Thanks for the follow up, there's no wrong answer to your question. You'll get there before you know it.

 

[Nesikep]

years ago I bought a car, but since it was older, no one would give me a payment plan on it.. I had a good job at the time so I just got a line of credit from my bank for $20k.. Paid it off in a year, then bought my truck on it... Interest may be a little higher than a loan, but there's no set repayment time, and you can just "shuffle" money around to make a payment if you need to.. and meanwhile you're also building up credit rating.. I had to provide proof of income (paychecks), but didn't need to put up collateral.

 

[Jeanne - Simme Valley]

Basically, that's what I do. I have a line of credit with FB. I can spend money on anything. Just call, they wire transfer to my checking acct. They have NEVER had any collateral.

 

[Brute 23]

I have a line of credit at my bank also... It's called a savings account. When I want to borrow money I just just transfer money in to my checking account. I make a repayment plan with myself and pay the loan back to myself monthly.

It has worked good so far. The guy making the loan is pretty sharp and laid back so we get along well.

 

[TexasBred]

I have a line of credit at my bank also... It's called a savings account. When I want to borrow money I just just transfer money in to my checking account. I make a repayment plan with myself and pay the loan back to myself monthly.

It has worked good so far. The guy making the loan is pretty sharp and laid back so we get along well.

Charge yourself an interest rate that you and the lender can agree on and increase your interest income. ;-)

 

[Brute 23]

I have a line of credit at my bank also... It's called a savings account. When I want to borrow money I just just transfer money in to my checking account. I make a repayment plan with myself and pay the loan back to myself monthly.

It has worked good so far. The guy making the loan is pretty sharp and laid back so we get along well.

Charge yourself an interest rate that you and the lender can agree on and increase your interest income. ;-)

Yup. It's amazing what taking a pro-active stance to money does to you life rather than being re-active.

 

[TexasBred]

I have a line of credit at my bank also... It's called a savings account. When I want to borrow money I just just transfer money in to my checking account. I make a repayment plan with myself and pay the loan back to myself monthly.

It has worked good so far. The guy making the loan is pretty sharp and laid back so we get along well.

Charge yourself an interest rate that you and the lender can agree on and increase your interest income. ;-)

Yup. It's amazing what taking a pro-active stance to money does to you life rather than being re-active.

Until you need more than you got then you have to do business with the evil banker or pass up the opportunity.

 

[Brute 23]

It's one thing to do it to expand or purchase an asset... It's another to do it to operate.