Bison Start Up and Investing Information
Market Development & Promotions Chair
Alberta Bison Association
April 3, 2000
This is a quick perspective on how I see investing in the bison business at this time.
Breeding female prices climbed rapidly through the mid 1990's and peaked around the early fall of 1998 at:
- heifer calves, $3500 to $4500
- yearlings, $5000 to $5500
- bred two-year-olds, $7000 to $9000
- cows from good breeding stock herds, $10,000
Prices then fell quickly (about 30%) over the next several months and fell a further 25% in early 1999. Breeding female prices have since stabilized during the fall sale season of 1999. Note that the most active trading period for bison is from October through to April with the bulk of both private and public sales occurring during this time.
The present heifer calf price is approximately 65% to 100% higher than the bull calf (meat) price. Meat bull prices have been fairly stable and have actually increased slightly over the same period as the breeding price decline. This has helped stabilize the current heifer calves' market price. Small movements in the meat bull price and market perception regarding the supply and demand of breeding animals greatly influences the price swings in the breeding female market.
Current price ranges for healthy, average, commercial animals sold at commercial auction from established herds are as follows:
1999 heifer calves $1500 - $2400 based on weight and farm background, $2000 average (Note: some calves have sold as low as $1200 but they are either extremely light weight - late calves and/or exhibiting inbreeding - disease, these animals can be either very good buys or very poor buys)
1999 bull calves $800 - $1300 based on weight and farm background, $1000 average, +/- $2.20/lb
1998 heifer yearlings (coming two and bred this year) $2200 - $3200 based on weight and farm background, $2600 average
1998 meat bull yearlings $1400 - $1800, +/- $1.75/lb
Bred 1997 heifers and younger mature cows $3300 - $4300, $3600 average
Breeding bulls (2 to 6 years old) commercial quality $2000 - $9000
Notes: These are not show & sale prices; show & sale prices command a premium depending on the status of the event, farm background and animal placing. The average prices listed are not true mathematical averages; they are values that I feel are a close approximation of the current fair market
value. Also, small or large volume sale situations may create a higher or lower trading value than listed above.
Typical day rates for animal husbandry range from $0.60 - $1.30 per day for younger bison (1999's and 1998's) and $1.20 - $2.00 per day for more mature animals. Depending on the Absentee Ownership Agreement, special handling and/or optional feeding programs may add additional costs (e.g. creep feeding, flushing, higher quality breeding bulls). As well, many operators of mature cowherds use calf- crop share, usually around a 50/50 split, instead of a fixed per animal price. This has a higher potential reward for the landowner but the landowner assumes more risk. Animals are usually not handled through the calving and breeding season (end of April to October) unless absolutely necessary.
Initial Operational and Economic Considerations
A large barrier to the entrance of new producers into the industry is the lack of knowledge regarding the handling of the animals. Bison require different handling and animal husbandry equipment and knowledge. Gaining this knowledge requires more effort initially, but pays off in the end due to more natural production practices (less man-hours per animal) than the more traditional meat animals.
Another barrier to the entrance of new producers into the industry is the high initial capital cost of the animals. Note that this has been reduced significantly by the last year's price declines for breeding animals. Conversely, a significant benefit of the high capital cost of bison to the landowner is the effective doubling to tripling of the land's economic production, compared to an equivalent number of beef animals. You can safely run as many bison cow-calf pairs as beef cow-calf pairs on the same land. The revenue from the bison calf-crop under current market conditions gives a worst case double and best case quadruple of the beef production revenue stream on the same land base.
As an outside investor the two barriers to investing in bison are firstly finding someone you trust to look after the animals at a fair rate and secondly the initial purchase of the animals (getting the right combination of lowest cost and best quality animal on the market). Liquidity is also an issue as the new producer or investor should have a plan for marketing the animals before they purchase them. This marketing plan determines the age, quality-price and type of the animal that should be purchased.
The investor or new producer who has the most potential for gain in this industry is someone who can weather the ups and downs of commodity pricing and is not forced to buy or sell at certain times in the year to satisfy cash flow requirements. A difference of even a few months in market timing can be hundreds of dollars per animal and over a few years it can be thousands. If using borrowed money, the investor should ensure that debt service could be carried by outside cash flow sources to allow market timing flexibility.
New Producer - Investor Economics
For some people, investing into the bison industry can be very tax effective. The following scenarios are for example purposes only, using the previously listed average market conditions, a 90% calving rate and day rate costs currently available. Returns may vary depending on actual market prices and day rate costs used:
Scenario One, Fifty 1999 heifer calves at $2,000 per Head
Using current market prices an investment today of $100,000 after tax dollars into bison heifer calves plus $32,100 pretax dollars (day rate expense spread over next 1.75 years) could generate a net pretax yearly revenue stream of approximately $36,500 after 2.7 years (27.6%). The pretax yearly revenue stream is net of the day rate expense for the cowherd of $31,025.
The original herd value also has an unrealized gain in value of $80,000 (80%) by moving the animals from heifer calf to bred cow status. Note also that some heifer calves could be sold as yearlings and/or bred two-year-olds over the same time period to generate cash flow or pay for day rate costs if need be.
Scenario Two, Thirty Nine 1998 heifer yearlings at $2,600 per Head
An investment today of $101,400 after tax dollars into bison heifer yearlings plus $12,730 pretax dollars (day rate expense spread over next 0.75 years) could generate a net pretax yearly revenue stream of approximately $28,450 after 1.7 years (24.9%). The pretax yearly revenue stream is net of the day rate expense for the cowherd of $24,200.
As well, the original herd value has an unrealized gain in value of $39,000 (38%) by moving the animals from yearling to bred cow status. Note that some yearlings could be sold as bred two-year-olds before calving to generate cash flow or pay for day rate costs if need be.
Scenario Three, Twenty-eight 1997-1995 bred cows at $3,600 per Head
An investment today of $100,800 after tax dollars into bred bison could generate a net pretax revenue stream of approximately $24,850 (24.7%) this calendar year and $20,430 (20.3%) per year thereafter. The pretax yearly revenue stream is net of the day rate expense for the cowherd of $12,947 for the first partial year and $17,374 yearly thereafter.
While this scenario is not as tax effective for revenue and asset growth as the first two scenarios, the cash flow and rate of return starts this calendar year.
A new producer, who owns the land, would add all the previously mentioned day rate expenses into his or her pretax gross revenue stream. Note also that the second and third scenario's excess cash flow could be reinvested into producing females if the cash flow was not required by the individual, thus increasing the future cash flow potential of these scenarios. Investing in the bison industry may yield other tax effective benefits that should also be explored by your accountant.
While it is extremely difficult to predict what the market price for bison will do past the next six months, I believe that it is safe to predict that the current market price of the breeding females is in the bottom quarter of the price curve. The prices may stay around this level for some time but that would be good for the long-term growth of the industry due to the stability of the market. I believe that meat bulls are presently in the top quarter of the price curve and I would not be surprised to see a softening in their prices over the next year to two years. On the other hand, I also wouldn't be surprised to see the meat bull prices stay where they are or even strengthen depending on the degree of success of the meat marketing companies.
As in any business or investment there are risks and rewards which have to be measured by each individual prior to their participation. The best protection from risk and the greatest potential for gain is if the individual has a good knowledge and understanding of the market prior to entering it. In my opinion the best advice I can give to potential investors or new producers is:
Get as much knowledge as you can from unbiased sources. Join an association if you plan on being a producer.
Talk to someone locally who is known in the business and visit his or her farm.
If you can, sit in on a few sales. Check the Internet, Tracker or Smoke Signals for recent sale prices.
If you are an investor, try to find someone you trust to look after your animals at a fair price.
Try to find someone to help you get started who does not have a vested interest in what you are buying (this may tie in with #4).
If you are employing an agent, make sure you know what the agent is going to do for you and for how much! Some agents do nothing more than pick up the phone and make a few calls. Most people I've met in the industry would do this for nothing, just to be helpful.
Before the animals are purchased, know where you are planning on sending your bull and heifer calves' production to be sold.
Do the math yourself and make sure that you are comfortable with market pricing, calving rates, animal deaths, industry downturns and all the negatives that could happen. Determine the worst case, middle of the road and best case scenarios. Also, factor in what you feel is the upside potential, effort involved and long term future before you decide if this investment or business venture will work for you.
If you would like to discuss any of the above opinions or would like further information regarding investing into the bison industry as a new producer or investor please contact me via fax (403) 347-3077.
THE FINE PRINT: The information and personal opinions expressed in this article do not constitute legal or economic advice. My objective was to summarize market information that is readily available and help the reader with his or her search for the knowledge required to make an informed decision regarding their participation within the bison industry.