Successful Linking Strategies for Beginning & Retiring Ranchers

The Center for Rural Affairs’(in Lyons, Nebraska) mission statement is to establish strong rural communities, social and economic justice, environmental stewardship, and genuine opportunity for all, while engaging people in decisions that affect the quality of their lives and the future of their communities. With this in mind, it created the national program Land Link.

The Land Link’s computer data base matching & consulting services, retirement planning, beginning farmer financing, farm business, and environmental assessment information assists in transferring family operations to new generations.

Beginning farmers or ranchers: Land Link matches your interests with farms and ranches in their data base. You will receive a description of those farms/ranches along with contact information.

Landowner: Land Link matches characteristics of your farm or ranch with the interests of the beginners in their data base. After they review your farm or ranch description with you, a copy goes to beginning farmers or ranchers that match those interests, with you receiving their contact information.

After you match with someone: Land Link’s staff provides examples of other successful matches, and makes suggestions and referrals based on your unique circumstances.

Below are 2 examples of “Successful Linking Strategies”. All principles used in the examples may apply to the acquisitions and transferals of cattle ranches.

Example #1: Goal: Place of their own on which to raise cattle & three young children.

This ranch couple had been renting a piece of ground and working as employees. The owner/employer wanted to sell.

The young couple got a bank loan to pay for the ranch home. The owners provided a 30-year mortgage on a portion of the operation. Annual interest payments were made during the first 10 years.

This arrangement allowed the beginning farmer to use the initial 10 years to build the cow/calf operation. The remaining acres carried a crop share lease with a long-range plan for a purchase. After 10 years the young couple will start paying on the principal. If the owners do not survive, the payments will go to their estate.

Example #2: With limited experience with cattle & some resources to invest, the beginning farmer found a landowner with a full herd of cows & machinery.

The arrangement began with an initial employment period of 90 days to provide guidance and to demonstrate varying techniques by the older person. A rental arrangement followed the 90-day employment period with an option to buy later. The machinery was valued at approximately $75,100, and a rate of return of 8% was decided upon.

An arrangement was also made on the cattle herd. The two parties agreed to a crop share of 60/40. There was room on the ranch for an additional 30 head of cows that the beginner would own and bring to the ranch.

The 60/40 arrangement allowed for a transition of the cow herd. As the older cows were culled, replacement heifers would come from the beginners’ share. The herd would turn over within approximately 10 years.

Center for Rural Affairs, 145 Main St, PO Box 136, Lyons, NE 68038,

(402) 687-2100, (402) 687-2200 (fax)

email: info@cfra.org

Website: www.cfra.org

This article was first posted in it's entirety in the 2008 winter issue of RanchWorldAds Magazine

RanchWorldAds.com

The average cow has 3 calves in her life time. Don’t believe me? Do the math.

Consider a herd in which 80% of the cows exposed to a bull actually wean a calf and stay in the herd (20% replacement rate). The average herd in north America has a higher replacement rate, but I’ll use a more conservative figure to illustrate the point. Using a 20% replacement rate, only 51% of the cows would be left in the herd after 3 years.

This statistic comes as a surprise to most ranchers. We tend to remember our 8 year old cows that have a calf every year, but they are the exception, not the rule.

Let’s assume that at the peak of the cattle cycle you’ll be able to buy bred replacements for $1,000 each and your open culls will fetch $500/head. That’s $500 of depreciation in 3 years or $167/year. If we take death loss into account it’s even worse. A dead cow in this scenario depreciates $1000. If death loss is 1% it will increase average depreciation to around $175/cow/year!

Now for the bad news, the cattle cycle intensifies the impact. The average replacements purchased at the peak of the cycle will be culled when prices are going down. That will make the annual depreciation over $200!

Now let’s find the good news in all of this. Depreciation on those cows purchased during the low part of the cycle may be less than $50 per year. In fact, some of our clients have restructured their businesses so that their cows appreciate in value! By adding value to culls (e.g. breeding, increasing weight, etc.) or taking advantage of the seasonal peaks in the cull market, they’ve been able to minimize depreciation and in some cases eliminate it all together.

At a recent talk in Nebraska I asked a group of about 40 ranchers to raise their hand if they were in the cow-calf business. Nearly everyone raised their hand. Then I asked them to raise their hand to show me who was in the cull cow business. Only one or two in the audience raised their hands. But if you are in the cow-calf business you are also in the cull cow business. This is an important distinction.

After calculating the cost of depreciation in his herd, a client in the Texas panhandle exclaimed, “I’ll never sell a cull cow again!” At first I thought he was kidding, but then he explained, “I’ve just realized that I can’t afford to sell culls. I need to find a way to add value to every animal that leaves my ranch.” He began studying the annual cull market cycle and sold cull cows when the market dictated. He made sure he put weight on his thin culls. He put bulls in with his open cull cows (although they no longer matched his calving schedule, they fit someone’s somewhere).

In short, he went into the cull cow business, but if you were to ask him, he’d tell you he never sold a cull cow. The bottom line is that he eliminated cow depreciation in his business. Managing depreciation is critical when you are Ranching for Profit.

Article from the 2008 Winter issue of RanchWorldAds Magazine 
Article by Dave Pratt of The Ranching For Profit School

Today's environment, even more so than in the past, leaves little room for an ambitious young person to gain a toe hold in the cattle industry. 

Capital start up costs are astronomical and approaching catastrophic. Land costs, machinery costs, fuel, fertilizer, insurance plus labor and the list goes on . To pay for this borrowed capital and realize a return on investment appears for all but the most fortunate almost unattainable. This start up idea is for those individuals who have a burning desire to own cattle but lack a pot or the window to throw it out of.

It dawned on me, several years into managing the local livestock auction, that most producers want top notch cows and a fair number of cancer eyed cows were being sold at yard sale prices. The real talent , I thought, would be to develop the innate ability to sort these cancer eyed cows mentally on the fly and determine which ones with a fair degree of accuracy could be saved.

After twelve years of buying, removing eyes and salvaging cows, I can say cancer eyed cows are a way for enterprising individuals with limited capital, to start small with manageable risk and grow a cattle business over a five to ten year period. This can be implemented even in the most challenging of macro economic environments, allowing an enterprising producer to create positive returns on investment with minimized debt risk.

Here are some examples: A five year old bred Hereford cow to calve in 60 days that is in good flesh, body score 6 to 7 will command a price of $900-$1000. She will raise a 550 black baldy steer calf sold for $1.20 a pound, grossing $660.

Her sister Hereford cow comes in at the end of the sale, she is 5 years old to calve in 60 days with a body score of 5 and the affliction of a modest cancer eye. She sells not by the head but by the pound. She weighs 1000@ .29/100 grossing 290 dollars. You determine that her eye is a good risk for removal at the hands of a highly skilled veterinary surgeon for a fee of $100, after which you will put her on a ration to gain rather than maintain. Your factory unit has cost you $390 and will produce a 500 black baldy steer calf sold for $1.20 a pound, grossing $600.

My question to you, cattleman, would you buy a factory unit for $1000 to produce $660 worth of goods or would you rather pay $390 for a factory unit that will produce $600 of finished goods? The answer appears obvious, but we must ask some other questions. Will your $390 factory unit have the same depreciable life as your $1000 unit? Odds are she will but at the end of her depreciable life you will sell her for .35/ versus her counterpart who will resale for .45/.

The black white - faced cow referenced here was purchased for 30 dollars / hundred weight weighing 1100 pounds and in advanced pregnancy. It was decided to increase her plane of nutrition and calve her before removing her eye. She is an excellent factory unit. This particular cow is 10 years old which will limit her longevity in the program but with adequate nutrition she should be productive for two to three more years and have excellent salvage value.

The ability to judge a cancer eye cow at auction is critical for a successful outcome. I believe that if one can be accurate at an 80% rate in selection then an excellent margin of profitability can be maintained. i.e. you can be wrong in judgment 20% of the time and still be successful.

There is no published grading system that I am aware of to assess cancer eye. The system we use is based on the location of the cancer. i.e. whether it is on the eye lid, the third eye lid or involving the eye only. Third eyelid cancers seem to be more aggressive and metastasize more readily. How extensive the involvement of the cancer must also be assessed. i.e. the extent of the area involved and whether it has invaded the boney structure of the head. Breed of cow also plays a role in long term prognosis. i.e. black baldy cows seem to have more aggressive cancer eyes than Hereford cows.

If the cancer spreads it will almost always show up as a lump jaw located behind the jaw and under the ear. Once the cancer has spread it is illegal to remove these lumps as they involve the lymph nodes and cannot be properly inspected at slaughter.

Northern latitudes are more conducive to positive outcomes as fewer screw worm or blow fly infestations of the surgical site are encountered. Seasonally, fall, winter or early spring are the best seasons for cancer eye surgeries. If removal is done in the summer, topical applications of fly repellants and insecticides may be warranted.

Infection is a rare complication of eye removal if careful steps are taken to limit contamination during surgery. Some drainage will always develop at the inside edge of the sutured eye lids as the body expels the blood collected in the socket after surgery. I seldom use antibiotics after eye removal as have seen no need and positive results without them.

This is a procedure that few producers attempt but can be mastered with little difficulty. I am of the opinion that for the time and equipment necessary to perform the surgery that unless a producer is doing a large number of eye removals, it may be more economical to have the procedure performed by a veterinarian, as us poor country vets have kids in college and need the money and should see the procedure done for approximately $100.

Let me say again, the cow referenced above is an excellent example of what can be accomplished with limited capital and minimal debt risk. As risks go, her cancer was a low grade tumor involving the eye only which should lend itself to a happy positive outcome even though she is a black whiteface cow. Her only drawback is her age which will limit her longevity but she will still be a positive cash flow cow weaning a 550-600 calf.

You do the math as I have and you will find that someone beginning on a shoe string can actually gain a toe hold in the cow business without the cloud of oppressive debt keeping him or her up at night. The talent, the ability most paramount in this venture, is to, with a keen sense of accuracy, select those cattle with the best prognosis for improvement in the shortest time possible with the least input.

Sincerely, Cowboyblu D.V.M.

Cowboyblu is a graduate of The University of Wyoming with a  microbiology BS and a graduate of the 1978 veterinary class of Colorado State University .Cowboyblu has been a mixed practitioner in the Great state of  Wyoming since 1978 and has been affiliated with the local sale barn for a good many of those years. This Article was first published in RanchWorldAds Magazine - Summer 2008

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