Farmer Genius

April 12, 2010

This is a guest post from my good friend, James Miller.  James grew up on a hog and dairy farm near Wiota, Wisconsin.

James authors the blog Quantum Devices Inc.

Comment and let James know what you think of his Dad’s ingenuity.

“How much do you want for the radiator out of the old Chevelle?”

This was my Dad, so I’d like to be able to say that I told him he could just have it.  After all, he was the man who milked cows twice a day, every day, to feed and raise us. He was also the man who paid the $326 for the speeding ticket when I was pulled over for doing 96 miles and hour in the family Bonneville.

I’d like to tell you that I just gave it to him, but I was a kid and went more like:

“How’s twenty bucks sound?”

I never even bothered to ask why he wanted it.

The next day I noticed that there was a section of garden hose strung from the old well to somewhere down in the basement of the house.  Another long section of hose ran back out of the basement into a dry dusty field.

I walked out into the field and saw the hose had been punctured so that, instead of water gushing out the threaded brass end of the hose, it trickled out evenly all along it’s length.

Dad was using the water from the old well to irrigate the field.

I walked back to where the hoses entered the basement and flipped on the cobweb covered ceramic light switch.  I followed the two hoses down the steep and narrow concrete steps. They led to the furnace where they both connected to the old radiator.  The radiator was temporarily fastened to the air intake of the furnace.  The furnace’s blower was running, drawing air in past the fins of the radiator and distributing the cold air though the house.

Dad had made a poor man’s version of air conditioning.

Here were the problems Dad had faced:

It was a particularly hot, dry summer, and it was difficult for mom to cook large “meat and potatoes” meals for the field help in the sweltering kitchen.

There was the even larger problem of no rain, which besides making it difficult to grow the crops, could also lead to wind erosion of the top soil.

Some people may have spent some money on a window air conditioner, or even converted the furnace over to central air.  Some may have even paid someone to come in and irrigate the field.

But Dad, like most good farmers, was both thrifty and clever.  I think that all those who tend to land and cattle have to have a certain level of farmer ingenuity that, in its higher moments, borders on genius.

So what is Farmer Genius?

Farmer Genius doesn’t check out a library book, know how to play an instrument, or the difference between Shakespeare and Voltaire. Since animals can’t read, Farmer Genius doesn’t really concern itself with spelling. I remember mom pointing out an ice cream bucket in the machine shed, saying “Look at that bucket of ‘NIALS’” over there.

Farmer Genius doesn’t know what happens when two vowels go walking.

Instead, Farmer Genius tends to be one of physicality and inherent understanding of math and physics, where one can mentally work out the right answer but not be able to prove with paper and pencil. Farmer Genius understands how a discarded shopping bag blowing across a field can frighten cattle into running through fences.  Farmer genius knows whether an engine is running rich or lean by the smell of the exhaust.  Farmer Genius doesn’t pay too much attention to the labels given to “screwdriver” and “hammer”; but instead sees everything and anything can be part of his toolbox.

During calving, Farmer Genius knows the moment when you need to tie the twine to the calf’s front legs to assist in pulling it from the mother; and do it in a manner that causes no harm to the calf or the cow.

The Farmer has a strict sense of right and wrong, but Genius is the part that always chooses to do right.

Dad’s Farmer Genius solved the problems a hot summer presented by using only what was on hand; an old well, some garden hoses, and a kid who would give up a radiator for twenty bucks.

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Reputation Selling Heifers

March 26, 2010

“Would you take 650 a head for the entire group?” Greg said.

“We would,” Dad said.  “But we’ve got guys coming to the sale. And I told Kevin I’m bringing them.  And Bloomington advertised already.”

“Yeah,” I said.  “I wished we could have talked a week ago.  We’ll definitely call you next year.  I didn’t realize you bought cattle in the spring.”

“Whenever.  Whenever there are good cattle to be bought,” John said.

“Do you think we made the right decision,” Dad said.

“Yeah, it’s our reputation,” I said.  “It’s probably going to cost us about 2,000 dollars, though.”

“How do you figure?”

“I figure they’ll bring about 600 dollars net at the sale barn.  So 50 dollars a head times 40 head equals 2,000 dollars.”

“I guess that sounds about right,” Dad said.  “Would could we do?  We’ve made a commitment.”

“And we’re in this business for the long haul.  So even if it costs us a couple thousand short-term, we can make it up long-term by having consistently good cattle that people want to buy.  Let’s call it an investment in our future.”

As our hay supply dwindled and the groundhog didn’t see his shadow, we thought about selling our yearling heifers.  We planned to select the heifers we wanted to breed and keep for cows and then offer the rest privately for farmers to add to their cowherd.  Whatever was left would be sold at the local livestock auction.  We have been doing this ever since we improved our genetics using Red Angus bulls and have always had a positive response from farmers.

We placed an ad in the local Shopping News.  It read, “Yearling Red Angus replacement heifers for sale.  Matthew Walter, phone number.”

We ran the ad for three weeks and I received no calls the first week, two calls the second week, and four calls the third week.  Nibbles, but no bites.

It appeared that our price was a little high.  We were asking $700 a head.  The feeder calf market was soft in January and the first half of February.  Our best estimate was that we would get $500 to $550 a head at the sale barn.

One guy stopped in a couple of times and told us we were $100 too high.  We thanked him for his interest and told him we would tell him when we took them to the sale barn.

Dale stopped in and walked through them.  We could tell he was impressed when 978 walked up and licked his arm.  People are impressed by quiet cattle.

Dale was interested, but in the whole group.  He wanted us to call him when we took them to the sale barn.

We called Kevin at Bloomington a week in advance of the sale so he could advertise them.  We contacted a trucker to help us haul them.  Everything was lined up for the March 12th sale.  And then John and Greg stopped in and made us a great offer.

The very night after we declined Greg’s offer, Kevin called us to make sure we were bringing our heifers.  He said they had received calls and there was definitely some interest in them.  Dad and I were glad we weren’t going back on our word.

We sat and watched cattle sell.  There is always tremendous variation in the prices.  Four red heifers averaging 666 lbs., brought 95 cents per lb.  Five black heifers averaging 632 lbs., brought only 88 cents per lb.

Thirteen red heifers averaging 656 lbs., brought 99.5 cents per lb.  I hoped ours would bring that much.

Our heifers came in the ring.  They looked good.  Thirty-eight heifers averaging 666 lbs., brought 102.5 cents per lb.  Two small heifers averaging 420 lbs. , brought 112.5 cents per lb.  Dale was the winning bidder for all of them.

They averaged $672 each.  Even after commission and trucking was paid, we still made well over $650 each.

We were happy.  We made some money.  And more importantly, we stuck to our word and kept our reputation intact.

2 Comments | Curious business, Curious cattle | Permalink
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March is the Mud Month

March 11, 2010

March is the mud month.

Returning geese, melting snow.

Rubber boots, wet gloves.

Pictured is our cowherd on their winter quarters.  We had them down to Dad’s most of the winter.  It was closer to the hay supply.  But as the weather warmed they started to damage the hay strips with their hooves.

We moved them to my contour strips which will be oats and no-till corn this year, so there is no hay ground to damage.  I am worried about them damaging the waterway which is a grass sod, but I think it will take the abuse from their hooves and spring back eventually.

Here is a picture of my contour strips last summer.

We are buying time until the frost goes out of the ground and the soil dries up, hopefully by April.  Because they will be moved into the calving pasture by April, regardless of conditions.

And this brings me to my point.  If you have animals year-around on your farm they always have to be somewhere.  And some days, even months, are not much fun to farm with livestock.

So if you are a beginning farmer here is my advice.  Stick with seasonal production until you know exactly what you want to do.

Broiler chickens, feeder pigs, lambs, calves, young cull cows, even year-old laying hens are all available in my area in the spring.  Only purchase what can be marketed by fall and have everything gone by Thanksgiving or Christmas.

And then you will enjoy beautiful down-time.  Down-time is even more valuable when you’re trying to figure out what you want to do.

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2010 Wisconsin Grazing Conference

February 2, 2010

I am looking forward to the Wisconsin Grazing Conference in Wisconsin Rapids, February 18-20.  The theme is “Pasture, People, Planet, Profit.”  Here is the schedule of speakers and entertainment.

I will report on some of the more interesting speakers  and any other scuttlebut I hear.  I have attended this conference several times and have always learned something and been rejuvenated by talking with my peers.  I hope to see you there!

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Salvage: A Junk Run to Belmont

October 15, 2009

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Loaded for a junk run to 1st Capitol Salvage in Belmont.

As we accumulate trash on the farm, we sort.  Recyclables, trash, and metal.  We take the recyclables and trash to our township pickup point in Calamine, open two days a week.   This is a service paid for by our property taxes. 

The metal is thrown into an old wagon and when the wagon is full we make a junk run.  This happens a few time per year.  The fun part about this is that scrap metal is actually worth something.  So as we get rid of what we consider trash, we have a payday.

1st Capitol Salvage was paying $100 per ton, yesterday.  I don’t know if this is a good or bad price.  I do know that a few years ago there was a huge demand for scrap metal and prices were at least double.  I saw junk moving out of fields and fencelines that hadn’t moved in my lifetime.  People made part-time jobs out of cleaning up other people’s junk.

We never let our farm get to the point where a junk-man would salivate.   It’s a constant struggle to keep a farm looking decent.  I’m glad we have a system in place to help us.

Our small load only weighed 580 lbs.  We drove away with a check for $29 dollars.  Another successful junk run!

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Money is the Only Thing That Can Be Insured

September 8, 2009

IMG_7333

Nothing in this picture is insured, not the barn, not the hoop buildings, not the crops, not even the dog.  I only insure that which would be financially devastating to replace.   Am I a reckless wildman of the north woods?  Or am I an astute businessman? 

I go over my farm insurance with my agent nearly every year.  A few years ago he pushed a paper across his desk and asked me to sign it.

“What’s this?” I asked.

“Oh, it’s just a waiver.  The insurance company won’t insure the hoop buildings for wind or hail.”

“Hmmm,” I scratched my head and smiled.  “What else could happen to them?” I asked.

“Oh, someone could take a knife and run along them,” he said, still trying to make the sale.

I thought to myself, “If someone is doing that, then I have bigger problems than hog housing.” 

“I guess I’ll take my chances,” I said and pushed the paper back across his desk.  “Let’s go over the rest of the policy.”  Now I was in a cutting mood and starting to get the high a spendthrift feels upon finding a nickel.

“The barn is insured for $10,000,” he said.

The premium for the barn was $150.  I thought about how little economically I use the barn.  I keep a few square bales of hay and straw in the top and I keep my chickens, (which is a hobby), in the bottom.  But I love that big, old, red barn.  If I were to drop the insurance I would somehow feel like I was neglecting the barn.

“We both know it couldn’t be replaced for $10,000,” he said.

Never talk through the close.

I perked up.  “You’re right, it couldn’t be replaced for $10,000.”

“But you could build something else, like a pole shed,” he stammered as he felt another premium slipping away.

I thought to myself, “If I wanted a pole shed, I would build a pole shed.  What I want is this barn, and the only real insurance is to avoid fires, keep up the roof and structure, and pray.”

What I was in considering in actuality was a $150 lottery ticket which would pay out $10,000 and the only way to win was for my barn to burn down.  I didn’t want any part of it.

So the test I came up with is, Could I afford to lose it?  What I was left with is insurance on my house and garage and personal belongings for $200,000 for a premium of $316 per year.  $500,000 liability for $82.  $36 because I have a 4-wheeler.  And an $18 policy fee which is unexplainable and would drive me crazy if I gave it much thought so I won’t for now.

So what do you think?  Was I raised by wolves?

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Health Savings Account

August 27, 2009

J9 recently commented and ask that I explain my healthcare.  Thank you for this suggestion.  This topic is timely as the country debates health reform. 

So I’m writing this on a rainy Thursday morning, trying to decide whether to eat eggs or hamburgers for breakfast.  Yes, my diet is still meat heavy.  I’m conducting a lifelong test on the question, “Does saturated fat clog arteries?”

I have a Health Savings Account combined with High Deductible Health Insurance through Golden Rule Insurance.  My insurance premiums and the money I contribute to the savings account are tax-deductible. 

Congress created this program in 2003.  I jumped on it quickly because I already had high-deductible health insurance.  It’s a burden to pay the premiums and to contribute to the savings account, but it’s nice to have money I can use for medical expenses.  And any money I don’t use for medical expenses can be used tax-free for any purpose once I reach retirement age. 

So what does this look like in practice?  I have a $3000 deductible policy.  For this insurance I pay $2223 annually.  I contribute $2850 annually to my savings account.  So my total health cost for the year is $5073.

I am in favor of healthcare reform.  However, I reluctantly admit, I am not writing letters or attending listening  sessions.  I do little more than vote.  I am waiting to see what congress comes up with and will choose the best option for me.

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Kiva: Microfinance With American Ingenuity

July 27, 2009

Can a loan of $500 dollars change someone’s life?  Microfinance says yes.  Microfinance is the supply of loans and other financial services to the poor. 

Muhammad Yunus is a Bangladeshi banker and economist.  While visiting a poor village near his university in Bangladesh in 1976,  Mr. Yunus was shocked to meet people kept in virtual servitude by usurious loans.  He made a loan of $27 to 42 women out of his own pocket.  This experience caused him to realize that an organization was needed that would provide banking services to the poor.  Grameen bank was born.

In 2006, Muhammed Yunus and Grameen bank were jointly awarded the Nobel Peace Prize “for their efforts to create economic and social development from below.”

Something about microfinance inspired me.  I like the idea of helping someone with their own idea.  After all, I’ve benefited from borrowing. 

I started looking for a way to get involved.  In 2007 I read that Premal Shah, the President of Kiva, was speaking in Madison.  Kiva is microfinance with American ingenuity.  Kiva’s mission is “to connect people through lending for the sake of alleviating poverty.”  “Kiva is the world’s first person-to-person micro-lending website, empowering individuals to lend directly to unique entreprenuers around the globe.”

I attended Mr. Shah’s invigorating talk.  The next day I made a loan of $25 dollars to Guloglan Agakishiev, who was running a butcher shop on what looked to be card tables.  Within a couple of months Guloglan had started repaying his loan of $1000 on schedule.  He finished repaying his loan in the fifteen months that was promised.

Testing Kiva even further, I let my money sit in their account and watched to see if they would sweep it into their coffers.  To their credit, they haven’t, and occasionally remind me that I have money in my account that could be loaned again or taken out.

Hooked, I started to give gift certificates to try to get more people involved.  And so now I am offering a $25 Kiva gift ceritificate to each of the first three people who comment.

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2008 US Farm Bill

March 29, 2009

“The unintended consequences of a government program are usually greater than the intended consequences.”  Unknown origin.

Have you ever wondered what the US Farm Bill looks like to an individual farmer?  We signed up our farm for the 2009 growing season.  I wanted to get on my high-horse and opt-out; but my parents talked me into taking the “free” government money.  When I hear farmers griping about “welfare moms” taking government hand-outs I can usually change the conversation with a simple question.  “How much is your government payment?”

The 2008 Farm Bill is on the books.  It covers the 2009 through 2012 growing seasons.  According to the “Wisconsin Agriculturist”, the 2008 Farm Bill works out to $189 billion for domestic nutrition programs and $102 billion direct support for farmers.  The direct farmer support can be further broken down into $42 billion for commodity crops, $24 billion for conservation, $22 billion for crop insurance, and $14 billion for supplemental disaster assistance, trade, horticulture and livestock production, rural development, research, forestry, energy, and other programs.

With $10 billion in offsets from tax provisions the direct farmer support is reduced to $92 billion, or about $18.4 billion per year.  That works out to about $60 for every American.  What are you getting for your $60?

An excellent informational resource is 2008 Farm Bill Side-by-Side.

Eligible commodities are wheat, corn, grain sorghum, barley, oats, upland cotton, rice, peanuts, soybeans, other oilseeds, and pulse crops.  Payment rates are found in the previous link.

What entitles a farmer to receive a direct government payment?  Eligible producers share in the risk of producing a crop on base acres on a farm enrolled in DCP; annually report the use of the farm’s cropland acreage; comply with conservation and wetland protection requirements on all of their land; comply with planting flexibility requirements; use the base acres for agricultural or related activities; and protect all base acres from erosion, including providing sufficient cover as determined necessary by the county Farm Service Agency committee, and control weeds.

That all sounds great, except I know of no farmer that has had their farm checked for these provisions. 

Our direct government payment for 2009 is $3,552.  How is this determined?

The direct government payment is based on the historical production of a farm.  This is an average record of the various crops and acres planted to each crop.   The USDA refers to this as “base acres”. 

The base acres are then multiplied by 83.3% to get your payment acres.  This has been reduced from 85% in the previous farm bill.

Your payment acres are then multiplied by the historical county yield to calculate yield per acre in bushels.

Bushels are then multiplied by the payment rate to determine the direct annual payment in dollars.

Here is what our farm looks like:

Commodity Base Acres Payment Ac. Yield Pay rate Direct pay
Corn 130.6 108.8 112 $.28 $3412
Barley 10.7 8.9 55 $.24 $ 117
Oats 18.2 15.2 62 $.024 $  23

The strange thing about this is we don’t have to grow these crops to receive the payment.  All we have to do is own or rent the base acres.  Farmers look at the expected government payment when valuing land.  An unintended consequence of the US Farm Bill is raising the value of farmland. 

Another strange thing is the pay rate.  This seems to be based on the strength of commodity lobbyists.  Look at barley and oats.  On our farm these two crops are managed the same.  Their effect on the soil is virtually the same.  Why is their payment rate so different?  The only reason I can guess is that the barley lobby is more powerful than the oat lobby.

We have over 100 acres of hay.  Why isn’t there a payment for this commodity?

The strangest thing of all is we don’t know why we receive this money.  We are long-term stewards of the land.  We don’t do anything differently based on the government program.  All it costs us is a couple hours of paperwork.

The most recent statistic I saw was from 2002.  Only one third of farms received a government payment.  Most of the farms that received a government payment received substantially more than $3500.  If anyone knows of more recent statistics, please comment.

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Capital Gains: A Great Way to Reduce Your Tax

February 19, 2009

We met with our accountant today to do our income taxes.  We found out we have to come up with money for Uncle Sam we don’t have right now.  So why are we happy?  Capital gains!  For every $10,000 we made with capital gains, we saved $3,000 in tax.

Capital gain is an underutilized tool to reduce tax.  We have concentrated on using capital gains to increase our after-tax income.  If your farming enterprise typically doesn’t show a profit, this post will have little value to you.

Ordinary income is subject to self employment tax, (social security), which is 15%.  Ordinary income is also taxed at increasing brackets beginning with 10% and going to 35%.

Most people think of stock appreciation when they think of capital gains.  The Bush years were kind to the capital gain tax rate.  Depending on your tax bracket, capital gains were taxed at 5% or 15%.  In 2008, according to our accountant, capital gains were taxed at 0% or 15% depending on your tax bracket.  Self employment tax is not applied to capital gains either.  This is another savings of 15%.

Capital gains occur in livestock farming with the sale of breeding stock.  Breeding stock used on your farm.  If an animal is used as a parent on your farm then it is breeding stock. 

If an animal is sold to another farmer for the purpose of becoming a parent, but was not a parent on your farm, it is classified as ordinary income. 

Animals sold as meat are classified as ordinary income, unless the animal was used as breeding stock, and then sold as meat.  That would qualify as a capital gain.

How does this work for our farm?  We sell many animals for meat.  We sell many animals for breeding stock to other farms.  The profit from these sales put us into the 15% tax bracket for 2008.  We also have to pay the 15% self employment tax on this ordinary income.  This means that for every incremental dollar we make, we pay 30% to Uncle Sam.

But for every capital gain dollar we make, we pay no self employment tax and 0% federal tax because we are in the 15% tax bracket.  This is a savings of 30%.

Even if we are in a higher tax bracket, the most tax we would have to pay on capital gains would be 15%.  This would still be a substantial savings.

So how do we shift more of our income from ordinary to capital gains?  Most farmers look at breeding stock as a cost and a net drain to their farm.  They select a $600 heifer from within their herd for breeding stock and keep her for her entire productive life of 10 to 15 years.  At the end of her productive life, and sold on the commodity market for hamburger, she will only bring $300 to $500.  It looks like a loss.  The capital gain tax break will make up some of the difference but it still doesn’t look very lucrative.

What if the $600 heifer is kept as breeding stock but sold at a younger age, say 7 years, for $900 or $1000 to another farmer.  Now your asset is appreciating and you have the capital gain tax break besides.  This is the strategy we have been using.

To make this system work and to keep your herd size constant you will have to keep more replacement heifers.  Heifer management and the selection of a calving-ease bull is paramount to success.

Also keep in mind that taxes change all the time.  It appears that the 2009 capital gain tax rate will be the same as 2008.  This tax break may disappear by 2010.  Take advantage of capital gains while you can.

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