Foothill Farming Blog
What to Buy First: Capital Purchases for New Livestock Operations
I help to teach a class for aspiring farmers in the Sierra foothills. Invariably, we begin talking about when a new producer should purchase his or her first tractor. This seems to be a “guy” thing – the male of our species can’t conceive of a commercial farming enterprise without a tractor! For most start-up crop farms, however, a tractor shouldn’t be the first capital expenditure. Things like deer fencing, irrigation systems and hand tools are far more critical to a small-scale vegetable grower – buying a tractor to cultivate an acre of crops just doesn’t make economic sense.
Start-up livestock operations face similar decisions relative to capital expenditures. In many ways, squeeze chutes and corral panels (or tilt tables and sheep yards for new sheep producers) are similar to that shiny new tractor – the male of our species must be attracted to shiny paint on steel equipment! Despite my own attraction to shiny things, my commercial sheep operation has always been under-capitalized. I’ve never had enough money all at once to go out and buy the breeding animals, fencing, equipment and tools I needed in one fell swoop. Consequently, I’ve been forced to prioritize my capital purchases. For livestock, at least, I think new (and established) producers should ask themselves three key questions regarding capital purchases[1]:
- Will this purchase increase my production?
- Will this purchase reduce my overhead?
- Is there a less expensive alternative to accomplishing the same goal?
Livestock
For our operation, the first priority for capital expenditure was the purchase of breeding animals. We evaluated the economics of buying feeder lambs from other ranchers versus raising our own lambs from our own ewes. For us, at least, it made more sense to raise our own lambs. Once we made our initial purchase of ewes and a ram, we continued to make a capital investment in our business by retaining as many ewe lambs as possible each year. In other words, we kept ewe lambs rather than selling them, which directly reduced our annual revenue.
Our expansion goals were directly related to the economics of our business. We needed to increase our gross margin (total annual production minus direct costs) to the point where we could cover our overhead costs. Unlike direct costs (which increase or decrease based on the number of animals we have), we incur overhead costs whether we raise one ewe or 1,000. Overhead costs are primarily labor and land expenses – breaking these down further, we include irrigation water (land), pasture rental (land), insurance (land), owner salary (labor), guard and herding dogs (labor), telephone (labor) and fuel (labor) in our overhead expenses.
Fencing
Secondly, we needed to keep our animals contained in our pastures. Since we operate almost entirely on land that we don’t own (and on which we don’t have long-term control), we opted for portable electric fencing. Had we owned our grazing land (or if we had 5+ year leases), we might have considered investing in permanent fencing. The trade-off – the portability and flexibility of portable electric fencing versus the reliability and durability of permanent fencing – also comes with a trade-off in terms of cost. In general, portable electric fencing is a far less expensive option. Portable fencing, however, requires more on-going labor. Our portable fencing allows us to more fully utilize our forage resources because we can place sheep on grass wherever it is – even if it’s not enclosed in permanent fencing. We decided that we’d trade labor in moving fences for the labor and added expense involved in feeding hay to our sheep.
Stock Water
Next, we needed to get water to our sheep. Stock water seems to be the most overlooked resource on many operations. Well-dispersed stock water systems allow us to manage our grazing more effectively. Again, since we’ve relied almost entirely on leased and free pasture, we didn’t want to invest in stock water systems that we couldn’t take with us when we lost a lease. We chose to invest in portable water troughs and water tanks that allow us to haul water to our animals. In a more permanent arrangement, I’d still invest in water tanks and a dispersed distribution system, but I’d weigh the options for reducing my labor in hauling water.
Predator Protection
While predators aren’t a huge concern for cattle producers, we were worried about coyotes, domestic dogs and mountain lions preying on our sheep. Our electric fences provide some protection, but since we’re not able to be with our sheep around the clock (again, a labor expense consideration), we decided to purchase livestock guardian animals. Our options included livestock guardian dogs, llamas and donkeys. After some initial research, we ruled out donkeys – they can be hard to use with herding dogs (more on this later). Llamas seemed like a possibility where the main predators were neighbor dogs and coyotes. Since we also have mountain lions in some areas where we graze, we initially decided on livestock guardian dogs. We’ve since added llamas to our livestock protection forces.
The question of llamas versus dogs illustrates a few important trade-offs in terms of overhead and effectiveness. Our dogs are the most consistent and effective guardians – we’ve never lost a sheep where we’ve had a dog with them. Our dogs deter predation by coyotes, dogs, mountain lions – even aerial predators like owls and eagles. On the other hand, we have to feed them every day. They require more expensive veterinary care on occasion. They can also be a legal liability in more populated settings. Llamas, on the other hand, can eat the same thing that the sheep eat – reducing our labor and feed expense. Their strategy for dealing with a mountain lion, however, is to hide among the sheep!
Transportation
Transportation equipment is perhaps the most expensive equipment purchase a livestock producer can make. We were fortunate to own a 3/4 ton truck and a gooseneck stock trailer before we started our commercial flock. A used truck and trailer combination in good condition would have cost us around $30,000. While this equipment is essential to our operation, it can also represent one of the most expensive contributions to our overhead. We’ve recently decided to consolidate our operation geographically so that we can limit the use of our hauling equipment to trips to the processor and to the sales yard. For the rest of our stock moves, we use our border collies and walk the sheep!
Stock Handling
Finally, we needed a system for handling our sheep. Specifically, we needed a system for sorting sheep, for dealing with health issues (including vaccinations as well hoof-trimming and foot baths), and for shearing. Looking back, I realize that we had two basic options: we could develop a system that was equipment based (much more expensive) or we could develop a system that was knowledge and skill based. Over time, we evolved a system that is more dependent on our own skills and knowledge and less focused on expensive equipment. By system, I mean a combination of techniques and equipment that allow us to safely and efficiently handle our animals in a variety of settings.
The conventional approach to handling sheep is to purchase pre-fabricated panels and set up a “race” or working alley, holding pens and sorting pens. Commonly, a footbath is placed within the working alley (allowing sheep to be treated for foot rot). A tilt table or some other restraint apparatus might be added to allow a producer to restrain a sheep for hoof trimming, injections, or other activities. A loading alley is constructed to facilitate efficient loading of a trailer or truck. Some producers will add a herding dog or two to help push sheep through the corrals.
This is a very capital intensive approach. The set-up I’ve described (for a flock of 150 ewes) would cost perhaps $3,000 (or more) to assemble – not including the dog. It is also, in my opinion, a very mechanically-based system. Our approach is more knowledge/skills-based. Let me explain.
One of the reasons I prefer livestock production to crop production is that I am intrigued by animal behavior. Perhaps out of necessity (because of our lack of capital), we had to develop ways to handle our sheep with minimal equipment. Early on, we were drawn to the stockmanship principles developed by Bud Williams. Bud once said that his system was focused on letting the animal do what he wanted them to do. We were also drawn by the shepherding traditions in Great Britain, which largely rely on a partnership with herding dogs for most husbandry chores. Accordingly, we invested in knowledge – we learned how to implement low-stress stock handling techniques and how to use dogs effectively and efficiently.
As a result of this approach, our current handling facilities are VERY basic. We’ve constructed a working alley and sort gate from lumber – at a total out-of-pocket cost of less than $400. We use our portable electric fencing for holding and sorting pens. I’ve converted an old equipment trailer to a portable footbath (at a cost of less than $300), which will accommodate about 30 ewes at a time. Using a design developed by Bud Williams, we use the instinctive behavior of our sheep to allow animals to move into and through the working alley at their own pace. With one dog helping me in the corrals, I’m able to sort a group of 250 ewes into three separate groups in less than 60 minutes.
For the more intensive tasks, like vaccinations or hoof trimming, we simply put 10-12 ewes into a holding pen, tip them onto their rear ends, and give an injection or trim feet. I’ve used a tilt table, and I’ve found that flipping is easier on me and on the animals.
For less intensive sorting tasks, or for doctoring sheep in our pastures, I rely on my dogs. With the help of 1 or 2 border collies and a leg crook, I can catch and treat a sick animal, or catch and separate rams from ewes, for example. With my dogs, I can also load a group of sheep into my trailer without any holding pen or loading alley.
For many sheep producers, lambing can be the most labor- and facilities-intensive operation of the year. We decided early on to develop a pasture-based lambing system rather than a barn-lambing system. This decision was partly out of necessity; we didn’t have access to barns on our leased pastures. More importantly, our decision was based on what fit with the rest of our system – we were pasture-based, so pasture lambing made sense. Rather than invest in lambing pens and barns, we invested in building a flock comprised of ewes who could lamb on their own and who would take care of their lambs without our intervention.
Perhaps it’s more useful to compare the cost of each approach side-by-side. Here are the relative costs of our approach and a more conventional, equipment-intensive approach to handling a flock of 250 ewes:
|
Equipment-based Approach |
Knowledge-based Approach |
Handling yards (24’ alley, 2-way sort gate, holding pen, 2 sort pens) |
$2,000 |
$500 |
Footbath |
In alley – 12 ewe capacity $175 |
Portable – 30 ewe capacity $1,000 |
Restraint system |
Tilt Table $900 |
$0 |
Loading facilities |
Alley and ramp $1,000 |
$0 |
Herding dog |
$500 |
$2,500[2] |
Lambing facilities |
$5,000 |
$0 |
Fencing (for 10 acres) |
Permanent $16,000 |
Portable Electric $4,000[3] |
Stock water System |
Permanent $2,000[4] |
Portable $500[5] |
TOTAL |
$9,575 |
$4,000 |
Finally, another important consideration for any capital purchase is the simple payback period. Each capital purchase should increase profitability, either by increasing production or reducing expenses. If we divide the cost of the purchase by the increased profit, we get the simple payback period. Obviously, the quicker we can pay off a capital purchase, the better.
A skills-based approach to livestock production is not without its costs. We’ve expended considerable time and expense in learning about pasture management, sheep husbandry and working dogs. As we were building our skills, we were probably less efficient than we would have been had we invested in permanent equipment at the outset. Today, however, I’m more efficient because I’m more flexible. Indeed, flexibility has been the most important benefit of our approach. We can take advantage of new pastures when it makes sense – because we have the skills necessary to build fence, haul water, and move animals safely and efficiently. With most of our assets in breeding stock, we’re able to adjust scale without worrying about using our equipment at less than capacity. Similarly, we’re able to expand without having to make extensive capital purchases in equipment.
[1] Capital Purchases are expenditures by a business for fixed assets, like buildings and equipment. Capital expenses are not used for ordinary day-to-day operating expenses of a business, like rent, utilities, and insurance. Breeding animals are also a capital purchase.
[2] Increased cost reflects purchasing a dog with better genetics and investing in building dog handling skills.
[3] Because the fencing is portable, this amount of fence can enclose an infinite amount of pasture!
[4] 600-gallon water tank, in-ground pipe and 100-gallon trough.
[5] Pick-up bed water tank and 100-gallon trough.
Pasture Lambing Workshop
Join UCCE and Flying Mule Farm for a 3-hour pasture lambing workshop in Auburn, California, on March 10, 2013. The workshop runs from 9 a.m. until 12 noon. You'll get hands-on experience in caring for newborn lambs, handling ewes and lambs, pasture management, and health issues. For more information, go to http://ucanr.edu/sites/placernevadasmallfarms/?calitem=177214&g=22527.
Marketing Academy on February 15th and 16th
On Friday and Saturday, the 15th and 16th of February, the UC Cooperative extension here in Auburn will be hosting a Marketing Academy which will cover topics ranging from increasing sales at farmers’ markets, to learning about wholesale marketing.
The first workshop (Friday, February 15th, 1-4 PM) will focus on using health and nutritional information as marketing tools to help boost product sales. In the past several months, we at UCCE have been producing nutritional cards for various crops, and distributing them when we do tastings at farmers’ markets. We have seen a tremendous response to this type of marketing and education, and want to ensure that farmers learn about this process and how to incorporate it into their sales operations.
We will kick off Saturday, February 16th (8-Noon), with a workshop about increasing sales at farmers markets. So much of this has to do with relationship building, creating a visually appealing stall, and, of course, brining your best product to market. Most farm operations can always do better in one or more of these aspects, and many farms can improve in all three. This workshop will give practical tips and tricks to help boost those sales.
To conclude the Marketing Academy, on Saturday the 16th (1-5PM), we will have a workshop entitled “How to Break into Wholesale.” This workshop will provide information for growers new to wholesale, as well as for those with some experience with wholesale sales. Farmers markets, as we all know, each have a limit in the volume of sales. Wholesale venues give access to larger markets and the potential for a greater volume of sales. For some operations, wholesale marketing is the key to becoming financially viable. At this workshop, farmers will learn the “ins and outs” of selling to several wholesale buyers, who range from a small local grocery store, to a wholesale distributor.
The importance of marketing in a farming operation should not be understated. Any farm depends as much upon production as it does upon marketing. From choosing an appropriate display for a farmers’ market, to deciding whether or not to engage in wholesale marketing, these decisions have profound effects on the viability of a farming operation.
Come and learn more about marketing and ways to improve your strategies for the impending farming year. For more information and to register for these workshops, click here: http://ucanr.org/sites/placernevadasmallfarms/?calitem=180483&g=22527
Your Hand is Not a Hammer
Winter seems to drag on forever, doesn’t it? In October I can’t wait for winter. I am tired of being hot and sweaty. I am tired of eating tomatoes. All I really want to do is eat leafy greens, stay inside by the fire, and read a good book. Now that it is January. I am tired of leafy greens and long for a tomato. The reading by the fire part I am still enjoying. I won’t say I have spring fever, but I am definitely feeling the call of the land.
This happens every year in January. I can feel a certain buzz throughout my body that I can still only by doing something farmy. What is a farmer to do when the weather does not allow outdoor farmy activities? I do a couple of things to calm my inner worker bee. The first thing I do is I plant tomato seeds. I plant more than just tomatoes. I plant all sorts of things: peppers, eggplant, celeriac, and broccoli raab. I have to keep myself under control because more than once I have started seeds too early, only to have the plants ready well before the soil is dry enough to work up for planting. Seedlings that are over mature at planting time never reach their true potential. So it is better to wait a few weeks rather than grow a bunch of plants you should never plant in the first place.
The second thing I do is make sure all my equipment is ready to go. I want to be able to capitalize on weather breaks and work up some ground, and maybe even plant some things like carrots, beets, or lettuce. I change the oil in all the tractors and do whatever the owners’ manual says in terms of lubrication and adjustments. Once the tractors are done I start working on the implements I attach to the tractor. I always start with the tools that have a gear box, like mowers and tillers. I check all the fluid levels and replace the fluids if the manual tells me to. I like to adjust the drive chains on the tiller, and January is a good time to replace any worn out leaky gaskets. This year I get the fun job of replacing all the tines on both of my tillers. (Actually, this is not fun.) If you have ever had to replace tiller tines you know what I mean. I have 72 rusted bolts just waiting to frustrate me. Hello, liquid wrench.
While I am talking tools I should pass on two items of farm wisdom that I always find valuable. The first one is: grease is your friend on the farm. The second is: your hand is not a hammer. I was told these gems by an excellent farm mechanic, and I do my best to take them to heart. Whenever I use a piece of farm equipment I grease it first and when I need to beat on something I try to find the appropriate beating tool and preserve the integrity of my hand. This is especially true when working with wrenches to loosen stubborn nuts and bolts. Use a mallet to tap on that wrench not the palm of your hand that is unless you really want to have carpel tunnel syndrome.
Every tool in the farmer’s and gardener’s tool shed needs a little love once in a while, so take the time this winter to oil all your wooden tool handles with linseed oil and make sure you sharpen all those hoe blades. Spring is coming and so are the pig-weed, lamb’s quarter, and whatever other weeds you have that make you crazy. Sharp tools will make the job of killing all those weeds easier and faster. The sun is shining, but the soil is cold so get out to your tractor shed and tool shed and do a little work on your tools so you are ready to go once planting season gets here.
Building a Tool: discoveries along the way
First of all, it’s not your typical farm tool. It isn’t a hoe, or a shovel, or even a tractor implement. But, it may help you harvest faster, increase your production, and lead to greater profits. By now, with the dawn of agriculture some 12,000 years or so behind us, it is reasonable to believe that every tool we really need has already been invented. Of course, there can never be enough variations of the hoe in the minds of the tool manufacturers. However, during the past several months, I have noticed a gap in the pantheon of farm tools.
The type of tool I’m talking about is a financial tool. Try though I may, I just cannot find a tool for small-scale farmers that help them address costs of production, profit margins, gross margin ratios, and other metrics in an accessible, comprehensive, and (this last part is very important) farmer-friendly manner. If I am remiss in my search, please let me know ASAP. However, I suspect that I am not. I have come across many books that either over-simplify this process, or address important accounting/book-keeping concepts while leaving out a comprehensive analysis of the operation in a (again, very important) farmer-friendly format.
In plain terms, here’s what I find lacking. Every small-scale farming operation here in Placer and Nevada Counties produces more than one crop. For an operation that produces one crop, it is very easy to get at the costs of production, profit margin, gross margin ratio, etc for that particular crop. However, when the farm starts to add crops to that list, the challenge of isolating these metrics becomes increasingly complicated. Any literature about this tries to address the problem by presuming that these crops exist by themselves, as if they were a one-crop operation. They do not.
In short, I seek to create a tool that can generate various metrics for a given crop, in the broader context of the operation as a whole. Translation: I am building a tool that will allow a farmer to know metrics for their carrots, beets, lettuce, broccoli, and whatever else they grow. I feel it’s a necessary step for farmers to be able to run a profitable business, and thus continue to farm.
Why is this important? Well, farmers may be selling their crop under their costs of production. For instance, through this process, I learned that for several years I was wholesaling bunched carrots for less than it took me to get them to market. Ouch. Maybe that’s why I was not hitting my salary goals! How many farmers are like me? Perhaps none. Perhaps several. Yet, I would guess the answer is that most farmers have this issue.
If you are a farmer, I recommend that you not be afraid of your numbers. Every little bit will help you and your business to succeed, and knowing your numbers may give you a measure of control in an otherwise unpredictable industry.