1. Roger Sahs Extension Assistant, Oklahoma State University Damona Doye Rainbolt Chair of Agricultural Finance and Regents Professor, Oklahoma State University

2. 20072012 % change On operation less than 10 years 25,686 19,873 -22.6% On operation less than 5 years 9,968 7,246 -27.3% New OK Farmers (number of principal operators) 2012 USDA Census of Agriculture

3. agecon.okstate.edu/oklandvalues

4. 30 year loan, 20% down Interest rate Land priceLand loan4%5%6%7% $1,200/a$960/a$56$63$70$78 $1,500/a$1,200/a$70$79$88$98 $1,750/a$1,440/a$84$94$106$117 Source: Quicken Loan Calculator

5. Repayment Period Down Payment Loan Amount 3 years5 years7 years 0%2,40073 901 47 572 35 432 20% = 4801,92058 720 37 457 28 346 40% = 9601,44044 540 28 343 21 259 60% = 144096029 360 19 229 14 173 Source: Quicken Loan Calculator

6. Rent 350 a Purchase cows Lease cows Purchase 200 a, FSA FO loan + Rent 150 a Purchase cows Lease cows Purchase 350 a, FSA DP Purchase cows Lease cows Purchase 350 a, Commercial loan Purchase cows Lease cows

7. Buy Land, Buy Cattle Buy Land, Lease Cattle Rent Land, Buy Cattle Rent Land, Lease Cattle Land: $1,500/a$525,000 Cows: $2,800/pair $98,000 Bull$3,600 Vehicle & trailer$23,500 Equipment: feed bunks, etc. $15,250 Supplies$2,000 Tractor$15,000 Total$682,350$580,750$157,350$55,750 Per cow$19,496$16,593$4,496$1,593

8. Loan typeTerm (years) Interest rateDown payment Maximum loan FSA Down Payment 201.5%5%The lesser of 45% of price, appraised value or $300,000 FSA Farm Ownership Up to 404%None$300,000 FSA Joint Financing Up to 402% less than FO or 2.5% None50% by FSA Commercial 306%20% FSA Direct Operating Loan 1-72.625%0$300,000 Microloan1-72.625%0$50,000

9. Loan TypeYearsInterest rateDown payment Annual Payment FSA Down Payment (350 a) 20 for FSA portion, 30 for remainder 1.5% for FSA, 6% for remainder 5% = $26,250 $32,831 $938/cow! FSA Farm Ownership (200 a) 404.0%0$15,157 Commercial (350 a) 306%20% = $105,000 $30,513 FSA Direct Operating 72.625%$21,498 w/cows $5,420 w/o cows

10. Year 1 Year 2 Year 3 Year 4 Year 5 $ per cwt Steers, 5/6 cwt243275276268260 Heifers, 5/6 cwt219248249243235 Cull cows118126124119115 $ per head Cows2,4002,9002,7502,5002,200 Bulls3,6004,3504,1253,7503,200 Bred heifers2,6503,2003,0502,7752,450 Source: Derrell Peel, Oklahoma State University

11. Leased LivestockYear 1 Year 2 Year 3 Year 4 Year 5 Cow/calf35 282114 Bulls11111 Beginning Operator’s Livestock Replacement heifers99999 Bred heifers7777 Cows71421

12. Lease Cows, Rent PastureYear 1Year 2Year 3Year 4Year 5 Calf sales14,96516,98319,77421,91623,865 + Cull sales3,200 - Cash expense12,32415,62416,62616,89117,164 - Capital purchases34,250 + New borrowing34,250 - Debt service5,420 - Operating interest397660803793559 Net cash flow2,244(4,720)1252,0123,921 Purchase Cows, Purchase Pasture, Commercial Loan Calf sales29,08630,99331,02030,16129,236 + Cull sales1,2989,70215,09312,36312,055 - Cash expense10,77514,46114,49114,49814,483 - Capital purchases555,8503,3004,125 + New borrowing555,850 - Debt service52,010 - Operating interest3001,8803,3085,1167,008 Net cash flow19,309(30,956)(27,821)(29,099)(32,210)

15.  Leasing cows and land is promising for those short of cash or not credit worthy.  Even with record calf prices, purchasing cows and land is a heavy task, but may be preferred if…. ◦ Other income is available for debt obligations. ◦ Excellent management skills and low cost structure. ◦ Land value appreciation allows growth in equity.