Originally published in Heartbeat Magazine Spring 2025.
Your go-to resource for navigating agriculture’s financial landscape where our knowledgeable FCS Financial staff addresses some common questions from our members.
Given current prices and the cost of buying replacement cows, I have decided I want to retain some of my heifers. However, because of prices, that is a significant loss of income for this year that will tighten things for me. What options do I have?
Scott Schaumburg, Vice President, Ag & Rural Lending, West Plains
To best address your situation, it's crucial to first gather some key information specific to your farm. This will allow you to identify the most suitable course of action for your unique operation.
First, let's assess the potential financial impact of retaining heifers. Consider whether the reduced income from not selling your heifers could be balanced by the increased value received for the steers, other heifers, and cull cows. Depending on your farm's input costs and debt obligations, retaining these heifers might also offer a future tax benefit.
After evaluating these factors, if you determine that retaining heifers will indeed create a significant income shortfall this year, potentially hindering your farm's ability to operate smoothly, FCS Financial may have some solutions. Two common financial tools that could be helpful in this situation are operating loans and term loans.
- Operating Loans: These are generally a good fit if the income gap is expected to be temporary, resolving within a year or so. For example, retaining heifers this year means they won't generate income until their calves are ready for market or the cows they replace are sold. An operating loan can provide the necessary funds to cover your usual operating expenses during this interim period when the revenue from the heifers would have otherwise been available.
- Term Loans: A term loan may be a more appropriate strategy if retaining these heifers represents a longer-term expansion of your herd that will require repayment over multiple years. It's important to recognize that even though you are keeping your own heifers, you shouldn't necessarily put your cash flow at a disadvantage. Consider borrowing a portion of the heifers' value, similar to how you might finance the purchase of replacement heifers from an outside source. Term loans can be structured with payment amounts and schedules tailored to align with your farm's marketing plan, making the repayments more manageable.
