I am trying to negotiate a deal to buy a A2 Jersy to a small local farm that would maintain it and give me my share of earnings.
I am new to this world and would like to know if the following:
As an example, lets say the cow is priced at $2000. I give them the money to buy it. They maintain it(includes feeding, vet, etc) and it is their farm and I am not responsible for any of those charges.
What the farm folks offered me was return of my 2k invested in installments every month + $500 on top of it + 1 gallon of milk every week
After which, they said, they would keep the cow and its calf.
1) Considering the life cycle of Jersey and the average milk produce of 3-4 gallons a day, is the offer appropriate ?
2) They have a client base where they sell a gallon for $8.
3) What better could I negotiate and ask for ? In my opinion, just a $500 on top of my investment return seems too low. Thats like a 25% gain and 1 gallon of milk is simply nothing.
4) I would like to get some % of returns beyond the 25% of return + my 1 gallon milk. How and what should I ask for ?
Highly appreciate if someone could explain me if my understanding of the gains is incorrect and would detail this for me to get a better deal.
Due to the nature of most farming, margins are razor thin. A farmer might borrow a million on getting a corn crop and be delighted to get a 8% return on investment.
Right now, there is a glut of milk on the open market, milk prices at very low prices.
$500 return on a loan of $2000 is too high if they pay you off in 12 months. Too low if they pay you off in 10 years. I missed the terms of the loan. You won't expect any milk during her normal dry period, often after 305 days?
If the cow dies, what then?
You are getting over $400 per year in free milk. That's a huge return on a 2 grand loan.
In real world transactions, the farmer buys the $2000 cow, sells $24 worth of milk each day, feeds the cow $5 worth of hay, spends 2 hours a day milking and chores at $8 per hour times 2, $16 and has $3.00 to pay on the $2000 loan. With 8% interest, it'll take him a couple years to pay off the loan. Accounting for 50 dry/not in milk days a year and zero vet costs, the farmer won't turn a profit for about 3 years.
But you want a bigger slice of the pie? Your "share of the earnings" is loaning the cash and the banks have already established what that's worth.
Reminds me of the time a farmer, that had an in town factory job, mentioned to a city co worker about plans to get 100 chickens to raise. The city guy, offered, " Well, why don't you get another hundred and we can split the cost of the feed?' So the farmer agreed. After a few weeks, the city guy asked about the chickens. The farmer replied, "Well mine are doing good but about a dozen of yours died." Sometimes we need to iron out the details of an agreement.
Ravi: Study this a bit. How soon would the $2000 be repaid? If in two years, the 500 represents a pretty good rate of return. Milk--I never thought ANY mile was worth $8 per gallon, but jersey milk is about the richest there is, and if the farm has a SECURE AND RELIABLE client base that will pay $8 per gallon, then that cow is going to produce around $24 per day for around 10 months each year, using your estimate of production, around $7,000 gross. Is this a start-up? Are they selling raw milk, and if so are they operating with the law?
I pay around $2 for whole milk, at Aldi's. I cannot imagine anyone paying $8, especially when dairies are going broke. However, if you value your milk as they do, you will have an additional $$300 plus each year in milk. (if you have a family, one gallon of milk per week is a drop in the bucket). What happens if they default and do not keep up the payments? Are you prepared to repossess a cow?
By the way; A Jersey dairy cow is a bigger animal than the little jersey cows we kept on the farm. Three gallons a day does not seem like a reasonable figure for such a cow. The little family cow we kept for household milk would start out at around 5 gallons per day and taper off to three before we dried her off.
As I read this, you are giving a farmer an unsecured loan. He is going to buy a cow with the money you loan him. He's borrowing at a simple interest rate of 25% - you didn't mention the length of time agreed upon to pay you back.
25% is pretty darn good, even for an unsecured loan. But you're getting more - you're getting a gallon of milk a week that grosses $8. The farmer has production costs into this - feed, housing, equipment, and vet bills for the cow. Not to mention his labor and cost of milking ( machine, cleaners, electricity, etc). You didn't mention the length of time the free milk is given - until the cow dies?
As a jersey owner, and raw milk supplier, the estimate of 3-4 gallons a day is reasonable. A jersey can give more, but her health will suffer. Also, you are getting 25 - 33% of the gross product produced by the cow.
Frankly, I think the farmer is crazy. I'd rather get an unsecured loan at 15-18%, buy my cow outright, and pay the loan off asap.
First off $2k seems a bit high, but maybe not. Secondly, I would stop looking at it from the standpoint of making a profit off the deal. If your wanting pure, fresh, unadulterated milk, straight from the cow...whats that worth? If it was only about the money I wouldn't have a few laying hens, or put out a garden.
Cows carry a pair of "A" genes. It can be A1/A1, A1/A2, or A2/A2. This gene determines the type of beta casein protein in the milk. Some claim that persons lactose intolerant, dairy intolerant, or allergic to milk are really reacting to the more common A1 beta casein, and can tolerate milk from cows that are A2/A2.
?????Why couldn't I have gotten this old a hundred years ago instead of now lol
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