Cattle have for centuries been the primary method of creating wealth. The wealth is created by the cow’s ability to produce offspring….
The DNA of the cow is 80% similar to human DNA. This is evidenced by the time it takes for the cow to become pregnant and produce offspring: nine months for both cows and humans. It also takes six months from birth for the human baby to switch from milk to solids; the same time it takes for the the cow to switch from milk to grass. Switching the calf from the mother’s milk is called weaning and such as a calf is referred to as a weaner calf.
Once the cow has given birth most people automatically think that the calf must then grow and also produce babies in a compounding method as in times past where land and grass were limited by how far you are willing to travel with your herd. This is a natural expectation but it ignores five major constraints:
- The ability of the female cow to conceive and produce calves every year is the most important part of beef cattle farming.
- The cow’s ability to conceive depends of the cows health, the quality of the bulls, the body condition of the female at birth and the quality and quantity of the grass in the three months after the birth of the calf. This is the hardest part of beef cattle farming as all these variables must align in order to ensure high conception ratios on cows.
- There is a 50% chance that the calf could be male (oxen) or female (heifer). If it is male, there is a 0% chance of it producing offspring and bull calves must be removed from the farm the moment they becomes independent.
- The farm has a maximum number of cows it can carry. This is determined by how much grass is available on the farm. In short, the farm can have enough grass for mother and baby but not enough for mother and grown calf. A real life example of this is a baby on her mother’s lap in an aeroplane; the moment the baby becomes a toddler she must get her own seat.
- It takes between two to three years for a female calf to reach “puberty”, where it is able to take the bull and conceive. In that three years she would be taking up a seat on a farm with limited space, which space could be profitably occupied by a confirmed pregnant cow.
These constraints informed our decision when designing the most optimal method for investing in cows through our crowd-farming platform. Smart investors want to own cows without being involved in the the day to day complexities of cattle farming. We structured it to allow investors to own the cows only for the time that they are confirmed pregnant. When confirmed pregnant, the cow becomes a financial product where there can be defined timelines of when the calf would be born and how long it would take to get the calf to be independent (weaned) and sold off to derive an income.
On the other side of the table is the farmer. Let’s take for example a farmer with 200 beef cows on his/her farm. This farmer has approximately ZAR4million in wealth but it is all tied up in cows. Let’s assume the farmer needs R150,000 to buy a new tractor. The options available to him are visiting the bank manager and asking for a loan or an overdraft or sell 10 cows at R15,000 each to raise the money. On sale the farmer must incur transportation costs, sales commissions, industry levies, the uncertainty of what price they would get at auction, and the uncertainty of having to replace the cows at some point in the future at a higher price.
The new and better option through Livestock Wealth is for the farmer to list his cows for sale on our platform and still look after them on his farm while they are owned by someone else for a maximum twelve months period until the weaner is sold. The farmer is now able raise R150,000 against his cows and is able to buy them back after 12 months when his financial situation has improved. The only cost to the farmer is the loss of income from the ten weaner calves for that breeding season.
We have termed this the twelve month fixed investment plan, where investors own a cow that is three months pregnant. From the time of purchase it would take six more months for the calf to be born and another six months for the calf to be weaned and sold. At the end of the investment period the investor gets their original investment amount back plus a profit-share from the sale of the calf which results in a 10% to 14% p.a. return on investment. This is better than most bank fixed deposits out there. Most importantly you can be proud to tell your friends about having money invested in cows and having pictures to prove it.