Living in a rural community for the last 14 years has helped me learn more about cattle investing. One valuable lesson I’ve learned is that it’s entirely possible to invest in cattle, without ever owning the increasingly unaffordable 43,560 square feet of grass, needed to keep those walking T-bones fed and hydrated.
Here are four ways how you can Invest in Cattle, without ever owning a plot of land.
These require little to no knowledge in cattle raising, and offer diversity to any portfolio, no matter what state the market is in.
#1 Buy Shares of Stock in a Publicly Traded ETN
An (ETN) is an Exchange Traded Note, similar to that of an Exchange Traded Fund or (ETF), with the difference being ETF’s represent a stake in an underlying commodity and ETN’s are shares of Corporate Debt with contracted rates of return based on market performance.
ETN’s are a cousin to a Corporate Bond. ETN’s are typically issued by financial institutions and can have liquidity risks due to the lack of buyers and sellers in the ETN Market. They can also have default risk if the issuing institution experiences some financial difficulties and defaults on their obligation to pay back the principal at maturity.
Which ETN trades the Cattle Market
One of the most popular ETN’s trading directly in the cattle market is the iPath Series B. Bloomberg Livestock Subindex Total Return, ticker symbol: COW. Offered for trading by Barclays PLC which is a large multinational bank headquartered in London. COW’s index tracks three types of livestock contracts; lean hogs, live cattle, and feeder cattle. The index typically rolls its contracts every other month, with the exception of May and June.
#2 Rent someone else’s land and become a Cattle Farmer
Popular Youtuber Greg Judy, has mastered the art of leasing land to ‘scale’ his massive cattle grazing empire. Nearly bankrupt in 1999, Greg now owns 4 farms and leases 12 others. His business model has allowed him to build his rather ‘stout’ cattle business. Greg wants to teach too, as he offers farm tours of some of his prized farms, along with teaching classes on how to build a cattle operation by using leased land.
In the United States, our beef often comes from far away places, and this can have unintended consequences. The opportunity for spoilage increases the further it has to travel, not to mention the fossil fuels which are expended to get the beef to our plate, can often be significant. Raising your own cattle on Locally-Sourced Leased Land can offset this, as well as provide you the opportunity to know exactly how the beef you eat was raised and treated during its life.
#3 Use a Livestock Network to ‘consign’ a large lot of cattle
Livestock networks are a consortium of cattle buyers who sell your cattle at auction on a mass scale. The idea is, the representative from the Livestock Network comes to your farm to assess your cattle for sale. They weight each cattle, assess the breed, frame size, a muscle mass.
If they determine there is a good market for the farmers cattle, they will agree to a partnership with the farmer.
This partnership will include picking up all the cattle from the farmer prior to the selected auction, the Network prefers total weight lots of 47000-50,000 pounds. At a typical ‘harvest weight’ of 1400-1500 pounds that amounts to roughly 33 cattle.
The livestock network, then sells the farmers cattle at auction, and takes a percent of the sale.
Why using a Livestock Network is ideal for a small farmer.
Moving cattle is expensive and stressful on the animal. Using a Livestock Network who has a great deal of experience to handle this part of the process is advantageous to a small farmer, who may not have to equipment to move 1500 pound animals.
A Huge Network of Buyers
Livestock Networks know when the ideal time to sell is, they know who is looking to buy, they can help you generate the highest price for your ‘lot’ and act as an excellent resource for guidance and education.
#4 Rent your land to a prospective Cattle Farmer
If you have land and a burning desire to avoid bush-hogging during those 100 degree July days, then consider renting it out for Cattle Grazing. There are oodles of farmers looking for a place to let their cattle graze. If you have a good fence, the desired grass for cattle raising, and a water source, then you’re in business.
This is something I’ve done this in the past, and it kept me from having to mow 14 acres! Not only did I enjoy watching them lumber around, bathe in my pond, and fertilize my grass, but it made for delicious filet mignon’s and ground beef, some of which still reside in my deep freezer to this day.
How I used a Self-Directed IRA to invest in cattle
After leaving a job with a company who provided a 401K, the money I had accumulated over the 8 years I was with the company, had to be moved somewhere. I thought for a moment about opening a traditional IRA to invest in stocks and mutual funds, but living through the Crash of 2008 forced me to consider alternatives.
I had heard about a self-directed IRA in the past, which allow you to invest in things like real estate, private lending, crowdfunding, land trusts and array of other vehicles.
So, when I was talking to my cattle-farming-friend about my investment “woes” one day, he suggested I buy some heifers (mama cows) he would have them impregnated through Artificial Insemination, and then we’d sell the calfs. He would provide the land, feed, vaccinations, artificial insemination, and labor, in return for a commission after the sale of the calves.
I decided I’d give it a shot. I had him buy 40 heifers at a strike price of $800 for each head. In the end, with my purchase of the heifers and his commission my total investment was nearly $50,000.
Multiplying my cattle investment
Fast forward to the following April, and I now had 76 head of cattle which sold for an average price of $913.50 each. After my friends fee of $14,150, I walked away with a profit of $5276 and a ROI of 10.55%.
What are some of the challenges with investing in cattle?
As an honest investor, I feel it’s important to provide you with, not only the advantages I see of various investments, but the disadvantages as well.
In todays vision of the way humans should interact with the environment, it appears there’s a ‘nudge’ toward getting folks to adopt a more ‘plant-based’ diet. Some see this as a way of lowering carbon emissions, while others see it as being a more ‘heart-friendly’ alternative to animal based foods.
I don’t necessarily disagree with with the health concerns, as I am more of a chicken and fish kind of guy, but I do hate peoples rights and liberties being infringed on. If you want to eat beef all day long, you should have that right.
Plant Based Alternatives are making Cattle Farmers nervous.
Rapid advances of precision biology have allowed for a whole new food industry known as ‘Food As Software‘. It appears scientists, in the dark of night, are building a massive database of ‘precision fermentation’, and documenting how food molecules interact with one another.
Many think this is the ‘writing on the wall’ and will unfortunately complete the transformation away from animal-based food consumption.
Fortunately, there is a substantial ‘Cattle Farmer Lobby’ in Washington D.C. so, the efforts towards migrating away from animal consumption will sure be met with a huge blowback.
Do you have any experience with Cattle Investing and see the ‘Lab-Food’ phenomenon as being more, bark than bite? If so, I’d be interested in hearing from you.
Jim started his real estate investing career in 2005 and enjoyed 3 good years before the Financial Crash of 2008. Jim’s been a steady equities investor for over 20 years, but really didn’t realize the power of dividends until 2015. Since then, he’s adopted an ‘if it doesn’t produce income, its not worth investing in” motto. Jim works in a sales and marketing position and has knowledge in SEO, Blog Writing, Website building, and growing a digital brand. If you’re looking to build your online presence, feel free to reach out to Jim.