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