> I know of several large dairymen,
> that are so far in hock to the bank
> they in there lifetime will barely
> be able to pay off all the debt they
> have incured, and some of these guys
> can't even write the checks to pay
> for anything on these daries without
> approval from the banker first.
>
> I have never found it so easy to
> borrow money to buy cows or to add
> barns to your place than it is in
> todays time. the trick is...
Hi,
That's just awful. I know these guys too. Every one of our
local mega-farmers are in exactly that position. It's bad
business and it's very bad for our country.
They don't use the money, pay the time value of the money,
and return the money in the traditional way. They consume
it and then it's just gone.
I have a good friend milking over 1000 cows and running it
from the graveyard. It's stuck in a trust because it can't
be sold without millions in losses for local banks.
Milk price has almost nothing to do with it. It's caused by
failure to self limit borrowing. Borrowing like this is an
attitude rather than a necessity. It's caused by failure
to self limit borrowing.
The trick is ..... it's far far better not to borrow money
except for land purchase.
My family have always self-financed farm expansion, so I
know, and can illustrate, that it's possible. I'm doing it
right now.
Our herd expansion was always driven by the natural increase
in cow numbers. We always had more springers than we could
sell so we just kept milking more.
That led to a need for more cow housing. We built those
addition buildings from current cash flow, with locally
available materials, and ordinary farm labor.
Our buildings always had a "tacked on" look to them, but
that doesn't have any practical significance.
The concept of "financial leverage" on a dairy farm is a
brain dead route to disaster when applied to buildings and
cow purchases. Applied to chattels and buildings, it's
mainly a way to rationalize personal desire rather than a
good business practice.
However it works great with farm land investment and is an
essential part of farm land investment.
Except for land, we can't borrow our way to wealth. We can
"grow" into wealth and we can "save" into wealth.
Turn it around... A good businessman running a profitable
dairy should generate cash that is somewhat surplus to
what's needed for for expansion. That can be saved or
invested in farm mortages for other farmers.
Both my grandfather, H. B. Owen, and my father, H. E. Owen
were full time dairy farmers, and ended up as bank
presidents of our local bank. I'm too busy for that many
meetings.
The point of that is that the successful people in dairy
farm life don't consume money. They accumulate and lend
money rather than borrow it.
Always with the exception of mortages for additional land
purchase.
--
Kindest regards,
=======================
F. W. Owen
Owenlea Holsteins
9430 Spencer Road
Homerville, Ohio 44235
e-mail fwo@bright.net
home page http://www.bright.net/~fwo
voice & fax 330.625.2369
=======================
