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Say buddy can ya spare a few hundred Thousand?

Say Buddy, can ya spare a few hundred Thousand?

We all know that the title of this article should not be the opening line of your visit with your lender.   However, if you aren’t prepared to show him what he needs to see to be able lend to your operation the capital it needs, that line is about what he hears.

As cattle feeders we are used to and fairly adept at, handling large amounts of capital.   The challenge in today’s business climate is that our lenders have to play by a whole new set of rules brought on by the shenanigans (good Irish word for a March article) in the mortgage industry.   The topic of access to capital has been a reoccurring one over the past couple of years and seemingly more so in the past 6 months.  This prompted us to visit with our contacts within the Ag lending industry and ask them point blank, “What are you looking for in a business proposal?”

We will be using the addition of 640 head of capacity of the Hoop Beef System to an existing feeding operation as our target discussion.  This will be approximately a $300,000.00 project.   The goal of the project is to be able to provide enough income producing capacity to bring Junior and his new wife into the farming operation.

  1. Knowledge and Passion for the project:  Your lender wants you to sell him on why YOU believe this is the best avenue for your operation.  There is marked difference between the statement to the lender, “Well we were thinking that this might be a good deal and we are hoping that you…..”  And “We are going to build 640 head capacity of the Hoop Beef System and here is how we believe the project will work…. and we want you as our lending partner….”

Can you hear the difference? If not read it aloud. Your lender wants you to show him your passion for this project.  It shows you did your homework.  In this presentation you will need to show your lender: Project Cost Estimates, Closeouts current and projected, Outline your current challenges and why you BELIEVE this is the best solution i.e., Consistency of performance and profitability, Regulation compliance, Reducing Market Risk, Efficiency of Labor etc.

  1. 2.     Records of past performance:  Your lender does not want to see just 3 years of tax records, but records from your feeding operation.  What is your current feed efficiency?  How much improvement can we expect in the new feeding system?  How does this system pay for itself over what period of time?   In this arena actuals trump projections every time.  We are happy to provide to our prospective customers closeouts from our feeding operation as a basis of comparison for your current operation.

 

  1. 3.   Equity:  You can’t borrow every dime for a project.  Your lender wants you “to have some skin in the game”.   20-25% equity in the project is fairly standard in today’s world.  More or less equity may be required depending on our current financial situation.  In our discussion scenario, Junior most likely does not have adequate equity and will rely on the more well-heeled partners to bring that to the table.  This is potentially a great way to transfer assets to the next generation, without a whole mess of tax implications.

 

  1. 4.   Sensitivity Analysis:  In laymen’s terms this is laying out the risk factors that can affect the outcome of a scenario and determining which factor has the greatest influence on the outcome.   For instance in cattle feeding, the major risk factors are; Feeder Cattle or replacement prices, Feed prices, Sales or market prices, which are all under the broad category Market risks.  Another broad category is Production risks including: Death loss, Morbidity or treatments, Weather events, Average daily gain and Feed efficiency.  There are also Operational risks which cover: Life Transitions like Death, Divorce, Disability or Departure from the operation.   In the sensitivity analysis we layout all these risks and determine which will have the greatest impact on the outcome.   Identifying the risks is one step; the next step is laying out the plan to mitigate these risks.

 

Feeding cattle in the Hoop Beef System mitigates many of these risk factors already.  When you put a consistent type of cattle, in a consistent environment, you get consistent predictable results, which allows for better business modeling and planning which reduces Market risks.   The System takes care of weather extremes and their corresponding impact on performance, which narrows the production risks to just our management ability to feed cattle well.    The only impact the Hoop Beef System has on Operational Risk is that when life happens, know that the learning curve to manage cattle successfully in the Hoop Beef System is relatively short and the next man up can step in and do a great job in short order.

As always, we are open to helping our prospective customers prepare for this conversation and we have the tools and experience to make this as painless as possible.   Contact us to schedule a time to lay out your plan and we will help you position your operation for the future.

 

We Got Ya Covered…Don’t track it in the house.

 

 

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Til the cows come home

The severe drought over the past few years,over large areas of what is traditional grazing country, has put pressure on the overall size of the cowherd in the US.   In recent conversation with a Texas rancher and seedstock producer, hit by the worst of the drought, he stated that it will take 3 years or more of good rainfalls to get his rangeland back into average production.

We are at historically low numbers for the national herd at a time when beef demand is at near all time highs.  These market signals tell us it is time to expand the cowherd.  The question are how to do it  and where to do it.

In reality it boils down to the question; do we continue to graze cows and calves on open rangeland as we always have, or do we look to a more modern system of raising these cows in dry housing, feeding the brood cow on crop residue and by-products.  Considering the well being of the cowherd, the analysis becomes primarily one of economics.

For the sake of this analysis we are assuming that this cattle operation needs to be of the scale to fully support the income needs of a young family.  Access to capital is assumed to be adequate and really looking at returns on investment.   According to North Dakota State University programs analyzing financial performance of cowherds from 1994-2004 the best managed herds average $105 net annual return per cow.  Assuming an annual family income needed for an independent operator of $65000 would dictate a cow herd of 620 head.   Finishing the calves from this cowherd to slaughter weight in today’s market, can add an additional $150 per head.  This takes the size of the herd needed to support the family from 620 head to 260 head!

The cost of the cow over her lifespan will be the same regardless of production system.  The cost of labor and facilities will be similar as a fully employed individual is fully active regardless; whether he is fixing fence moving cattle or feeding cattle and working in a drylot facility.  As far as comparing facility costs in most cow herds in the upper Midwest, there is extensive facility to winter and calve the cows.  In this analysis we are assuming that these facilities are adequate to maintain the pair year round not just for the winter feeding and calving periods.  In essence, we are looking at the 150 day period, when normally the pair is out on range; its associated costs and the cost to keep that pair in a drylot scenario.

While researching in preparation for this article it became very apparent that the variance in pasture rental rates is as wide as the Missouri River in flood stage.  Rates are one topic, availability is another and it would seem that between farming pressure, wildlife preserve and hunting pressure and urban sprawl the availability of good rangeland is very tight.    Could you lease enough grass within 100 miles of your farm to add 625 cows if you wanted to?  In the areas of the upper Midwest where feed is available the answer to that question is NO.  This question is not can we drylot pairs to expand the cowherd but HOW to.

 

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This exact scenario is being accomplished today in the Hoop Beef System.  Utilizing ground corn stalks and Wet Distillers grains we can design rations for the cow to meet her requirements in all stages of production for an average of $1.09 per cow per day or $397.85 annually.  When in the Hoop Beef System, the Net Energy for Maintenance (NeM) is 40% less than a cow grazing, because she is not expending energy foraging all day for her dry matter.  Just like a feeder animal in extreme weather, we do not have to accommodate an increase in NeM for the weather conditions.  With adequate living space and the unmatched ventilation of the Hoop Beef System we can comfortably and profitably drylot cows all year round.

For more information how this might fit into your operation please contact us and we will help you position your operation for the future.

We Got Ya Covered…Don’t track it in the house!

 

 

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News

2012 NCBA convention interview

At the 2012 NCBA Annual Convention in Nashville, Tennessee Shaun Haney with realagriculture.com visits with Hoop Beef’s System Consultant, Tim Bickett, about the benefits of the Hoop Beef System.

Over the course of the 3 day trade show dozens of producers from all across the United States, as well as a producer from Brazil, stopped by our booth to learn about how the Hoop Beef System can improve their operation’s bottom line.
These producers were from all aspects of the beef industry; university professors, stockers and backgrounders, cow/calf operators and feeders of all sizes. The common theme in all these conversations is how do I take advantage of these good markets and do it profitably, without breaking the bank.

It was exciting to spend time around progressive positive cattlemen and women. We are excited to about the prospects for 2013 in Tampa, Florida

We Got Ya covered, don’t track it in the house!