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Monthly Archives: September 2014

529 Plan Updated

My 529 plan was originally posted in March of 2013. In my example here, my daughter would have the original 5 head paid off at age 3.  As an update of how well this can work, my daughter has 8 head fully paid for and a few hundred dollars left over.  The cattle market has been extremely generous this year, making our original investment of just over three thousand dollars in February in 2011 worth over ten thousand dollars today.  I seriously doubt anyone has a college/future investment plan for their kid that has done this well.

In all fairness and objectivity, I am fully aware that this bull market will not last, and the value of her cattle will drop. Even so, she has added three more head than projected, which will generate an income even in the bear market that will come someday.

I also mentioned that the cattle biz will help me teach her life lessons. My buttons pop off my shirt as I swell with pride over how much she knows already.  Most of that knowledge coming from her just being around and observing me.  Seeing as how I have seniors from K-state and UNL calling me now seeking advice on everything and anything to do with the cattle biz, I’d say my little girl is way ahead of the curve in more ways than one.

Her lunch is there on the left.  She is following along during the sale with barn card and pen in hand.  Still a bit young for a cell phone

Her lunch is there on the left. She is following along during the sale with barn card and pen in hand. Still a bit young for a cell phone

cat walks provide the best view.  From here she can see all the action in the yard.  This can provide entertainment for quite awhile

cat walks provide the best view. From here she can see all the action in the yard. This can provide entertainment for quite awhile

 

 

The original post:

Ever since I was a little kid all I wanted to do was farm and raise cattle. Everything seemed so simple back then.  Just grow up and do what you want to.  We all had that dream.  When you get older, and especially when you have a kid, things get real.

 

In the last year and a half I have spent way more time in the lawyer’s office and CPA’s office than I care to in a lifetime. I did not get into the cattle biz to learn all about LLCs, Trusts,  payroll taxes and crap like that.  Thing is I do get to do one money/parent thing I love.  Invest in my kid’s future with nothing other than cattle.

 

A couple years ago I got fed up with the stock market, and pulled all my money out of my Roth IRA, and used the money to buy cattle. I’ve had a 20%, or better, return on my money since 2005 with cattle.  My IRA never did that.

 

So here is my thinking. As a parent it is always a concern of how to pay for college, even though I would not recommend college, or how to at least give our kids a good start.  After Bernie Madoff ,  John Corzine, and computer generated trades I do not trust the markets.  Thing is I know cattle, so I stick with what I know.

 

Here is what I’m doing for my kid. The numbers are based off my last trade just last week.  I know the cattle markets will move so for this example I am going to freeze these numbers for the next 18 years.  Thing is even in the last 8 years I’ve still managed to make a 20% return.  Keep that in mind

 

I market my cattle on a real time cash flow reckoning, so this allows me to always buy back replacement cattle at a profit. You will need to learn how to do this in order for what I am about to outline for you to work.

 

So when my daughter was born I bought her five head of calves. In this example I am using 480# heifers at $1.43 or $687 head.  So five head would cost a total of $3385.  We are going to back ground these heifers and resell them, and replace at a profit.  So in this example we are selling 730# at $1.33.  My real cost of gain is $.93 with a 2.75# ADG so when I add on a 20% return my cost of gain goes up to $1.15.

 

The 20% return is a $55/head profit. Buying 480# calves and selling them at 730# with our rate of gain we get to turn 4 times a year.

 

Now those first five calves I bought for my daughter are financed through the Bank of Dad (BoD). So when we do our first four turns in year one the BoD collects all $1100 of profit and subtracts it from the $3385 that was loaned to the new baby.  At this pace the kid pays off the first 5 head by age three and has $84 left over.  After this point we make the kid reinvest their profits into buying more cattle.  So after four more turns the kid will have enough saved up to buy 6 calves.  I think that would make for a pretty proud four year old.

 

Now I am going to assume you see the pattern here and I don’t need to do all the math for you and show you the year by year turns.

 

By age ten in this example the kid will have 37 head. Since there was an income for a minor dad paid the taxes for them.  By now I figure it’s time to secure voter registration, and make the kid a tax payer.  Ouch!  So just figure between Fed and State tax kiss 15% good bye.  Gotta pay for the roads we are using to haul these cattle.  Long before we get to this point, a responsible parent is having/helping the kid pay bills, and balance a check book.  Lots of lessons to be taught here.  I have a buddy doing this with his kids, and it helps them to see there is a purpose in learning math in school.  Also all the lessons that come from helping, do chores.  Some real character building here.

 

Now by the time the kid is 14 we stop adding more cattle. We stop at 75 head.  That is enough for a pot load.  Also when we stop at 75 head after the first turn we have the rest of the year to do the other 3 trades and save money.  At 14 what kid doesn’t want a car?  So, let them buy one with their own money.  They will have enough.  Also let them pay for some gas, tax, title, insurance and so on.

 

Now after the car is paid for with cash, we have a decision to make. Do we just hold it here with 75 head, or do we keep buying more?

 

For my example here I stopped at 75 head and just started saving money.

 

By 18 the kid will have 75 head of cattle worth $72,000 and saved $39,000, and spent $35,000 on car, gas and so on. So our original investment of $51,500 turned into $146,000 in 18 years.

 

Now I know the doubting Thomas out there is thinking well you didn’t figure feed and so on. That was in the cost of gain and subtracted from the dollar difference between selling the 7 weight and replacing with the 4 weight.  Leaving us with the $55 retained profit.  And it took 14 years to get up to a load lot.  This is a crockpot not a microwave.

 

Now what if we took that $51,500 and invested it into a 529 over 14 years, and stopped and then just let the interest compound for four more years until the kid was 18. At a 10% rate of return we would have $169,000.

 

I really think cattle can compete with a 529, IF you market correctly.

 

This is what I am doing for my kid. Now according to this example the 529 out performed my cattle plan.  Thing is the 529 didn’t give a sense of accomplishment, or ownership like the cattle do.  The 529 didn’t teach responsibility of paying bills, buying and caring for a car, and cattle, managing cash flow, or understanding where money comes from, and marketing skill.  The 529 didn’t teach the kid how to run a business, and looking at how many animal science and ag business majors corkscrew operations into the ground college didn’t teach that either.

 

So when my kid is 18 there will be three choices to make. 1) Go to college, keep the cattle and hire dad  to take care of and manage it and use the income for school, or sell them off and go to school, with the goal of graduating debt free.  2) Sell them off and pursue something else.  3) Continue to do the cattle thing.  And I can tell ya with a track record and cash flow like this even at 18 a banker will finance the youngster, with daddy’s supervision of course.

 

Now suppose I’m half right. And after 18 years you only have a net of $70,000.  Still pretty damn good.   What if I’m half wrong and by 18 you have $300,000?  Wow!

 

My kid is two and already owns 6 calves all on her own. But she gets to take advantage of my buying power too.

 

Dave Wright President of Independent Cattlemen of Nebraska (ICON) said something to this effect once “I raise kids, the cattle are there to help me teach them life’s lessons”

 
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Posted by on September 26, 2014 in Uncategorized

 

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Time is Not Always Money (Farm Safety)

Labor Day morning I woke up and gazed out the window sipping my coffee, when I thought back to four years ago.  That was the last time I’ve had even the smallest of injury.  As I’ve gotten older I take farm safety a bit more seriously.  Becoming a father has also made me more aware of the importance of taking precautions and changing habits.

Proper Set Up

The Labor Day incident involved cutting bulls.  At the time I did not have a squeeze chute.  I just had a head catch at the end of an alley.  I had to climb over the alley fence and get in behind the bull.  I had a friend there helping me, which is out of the norm for me.  After I cut the bull he fired off one good shot with his hind foot and hit me right in the eye.  I had protective sun glasses on and they cut into the side of my face, just a fraction of an inch from the corner of my eye removing a chunk of flesh.  It was a real challenge for the doctor to stitch it back together.  The hole in my head got infected, and when I’d wake up in the morning I’d have a bump bigger than a golf ball that I had to drain daily.  The doc told me he thought the sun glasses may have saved my eye.  This has made me an advocate for protective eye wear that matches the task you are doing.

The take away from this example is I did not have the proper set up for cutting bulls.  Even though it meant I was leaving some profit behind I quit buying cutting bulls until I purchased a squeeze chute.  It was one of the better purchases I’ve ever made, given how many cattle I run through it in a year.  Its hard to justify risking your health because you are cheap like I was.  I might add, that at the time this happened there was no rescue unit service in the near by town because some political muscle flexing shut it down.

Years ago I put in a retrofitted version of a Bud Box onto my facilities.  This allows the cattle to flow nicely into my alley, and I can do it without having to get in with them.

Other People

The worst bumps I’ve ever taken have been while working with other people.  I almost flat refuse to have anyone around while working cattle anymore.  For the longest time I could never figure out why it always went better while I was by myself.  Then last month it hit me, I am having to deal with the pressure they are putting on the cattle.

One day while loading cattle out, the driver was in the corral with me.  In typical trucker fashion he reached up and zapped one with his hot shot.  She kicked me square in the groin at full stroke.   Having been a bull rider for years I know how badly dewclaws can mess a guy up.  I’m not joking when I tell you that it went numb quickly and I felt blood running down my leg.  I had to check to make sure things were still there.  Problem later on was the bruising and swelling.  I had to psych myself up to endure the pain just to take a leak

Now I clearly communicate to my drivers exactly where I want them to stand and what I expect of them.  If they move from that spot or do something out of turn, I just stop.  At these moments time is not money, if it keeps a guy from going to the ER

Take Charge of Your Area

Years ago I was messing around with some recip cows.  I was running them through to synch them one day.  Now I’m one of those guys who knows how I left things.  One day my mom, for some reason picked up the bars I place in the alley to keep the cows from backing up, and placed them vertically along the alley fence.  I kinda spaced that out.  I placed a bar behind one cow and in front of another.  When the lead cow moved forward the cow in back lunged forward too.  She pushed the bar in the alley forward and into one of the bars my mom placed along the fence.  That bar slammed into my forehead with all her weight and force behind it.  The last thought I recall going through my mind was “Don’t hit the ground or you’ll die”.  I came to over at the water hydrant some time later.  I’m not sure how I got there or how long I was there.  Looking at the blood trail I didn’t walk very straight.  I felt fine and went back to finish up.  I lost control of my hands and jabbed a needle through one of my hands when I missed the bottle I was trying to draw from.

From then on, I get upset if someone messes with anything around my working facilities.  Thing is, it is my responsibility to take a look around and make sure everything is in its place.  So now I just do a quick walk through before I bring the cattle up.  Again, time is not money in this instance.

Habits

Habits, we all got them, good and bad.  I kinda have a system to make sure things are in a certain place.  Take my branding iron for example.  Its and electric one so I make sure its in a metal bucket while processing cattle.  Otherwise I know I’d bump into it, trip and fall on it or something.

I now have a place for everything when processing cattle.  This is especially important for me since I’m ambidextrous.  I might perform a task with my left hand, and set it a certain way only to place it differently when I use it with my right.  One day this ended up with me getting a scalpel buried into my under arm

I know a guy who was forced to sell off all his cows a few years back.  He was feeding them a round bale.  He had it up in the air and walked under it to open a gate when the loader gave out and it all came down on him.  He was crushed under it and was pinned there in the mud and cold for hours before someone missed him and went looking.  I am still guilty of doin this.  I try to always remember to walk all the way around it.

One good habit I do have is to never mess around with a PTO.  I was at a youth ag leadership conference once and they spent some time there on farm safety.  They showed us a slide of a boy who stepped over a PTO while it was running and he got caught in it.  The slide showed his testicle sitting on his leg, after his scrotum had been ripped off.  Might seem a bit to graphic for some, but hey, it made its desired impression on me.

Last year my dad’s combine caught on fire.  It went up pretty fast so a fire extinguisher would have been no use.  Thing is after that day, I have a whole new appreciation for those things.

And lastly, as more and more people in this country seem to be popping some kind of pill, I would suggest making a list of the meds you are on and keeping that list on you.  That’s good info for medical responders to have

I know this was a bit long.  With harvest and weaning time coming up, people tend to lose their heads.  Just remember, sometimes time is not money

 
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Posted by on September 10, 2014 in Uncategorized

 

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