 Hello, my name is Dennis Brothers, I'm an associate extension professor with the Department of Agricultural Economics and Rural Sociology with Auburn University. We'll talk to you today about managing a poultry loan. Well, actually, after I thought about that title, I decided to change the title of this seminar to commercial poultry business management. Because once you enter into a poultry contract and you get a poultry loan, there's not much managing of the loan to be done. And that's one thing new growers need to understand. And certainly if you aren't existing growth, you already understand this, but when you enter into a poultry contract with a commercial integrator, you also enter into an agreement with your lender, where the integrator pays your lender directly for the loan amount and you never see that money. That can happen in a multitude of ways and a grower needs to understand how that's going to happen. Sometimes the integrator sends your entire poultry check to the bank. The bank takes out their portion and sends you the rest or puts it into an account for you. Sometimes the integrator mails two checks, one to the bank and one to you. It's done in several different ways and every grower should consider that as they enter into this business entity. But so based on that, let me share my screen and we'll start our seminar, which I've called commercial poultry business management. The way I want to look at this is look at things that I've seen over the years and that gathered information from the financial institutions. Things that they have seen calls issues with growers starting a commercial poultry business. So we're going to call this the three barriers to starting a successful poultry business. And they are one an uninformed grower or sometimes an uninformed lender. Also misunderstanding the startup cost of a new business, particularly a new poultry business and then lack of budgeting or financial discipline. So let's get started talking about these issues. Number one uninformed grower or lender. Well, the first question is, do you know what it means to be a contract poultry grower? Do you understand the business you're about to enter into? That the fact is you will be required when you have birds in the house for 24 seven management birds are always needing your management needs somebody to pay attention to what's going on. And you're going to have birds probably 80% of the year. So you're going to it's you need to have the ability to be on farm or somebody to be on farm. Sometimes that is a hired labor or hired management. Oh, there are labor requirements and those labor requirements and management requirements while they are consistent across different types. You need to know what type of birds you're looking at at starting your business, what kind of entity are you going to be a breeder grower or a grower grower or a pulling grower. Because different types of birds require different levels of management, different levels of labor. And understanding that makes a difference to how you how you get into the business and what you expect once you're there. You understand how you be paid. Do you understand the cash flow? Different bird types get paid different ways. And so you need to know how that's going to work. You also need to know what kind of funds you will need and when to continue the business. If you're a pulling grower or a breeder grower, you get a fairly consistent paycheck. If you're a breeder grower, you get set number of paychecks that's tied to the number of flocks you grow and you don't get paid till after the flop. Well, you need to know how long that flock is. It's going to be eight weeks between checks or 12 weeks between checks. Those things make a difference. You need to understand the cash flow and then know how that ties into your lifestyle, your standard of living. How much are you going to need to maintain your current standard of lifestyle? And do you expect that lifestyle to be increased with your new business? And how much is it going to take to maintain what you expect to get? We talked about farm type and management that plays into your lifestyle. Are you ready to be a poultry grower where you have requirements on you for management? We have to frankly worry about the chickens all the time. There's chickens on the farm. You're raising a live animal that needs constant oversight. Is that going to fit into your lifestyle? Is that what you're looking to do? And then the labor is going to be required. What kind of labor? There's a difference in growing small broilers that are three to four pounds at market weight to grow in large broilers that are nine to 10 pounds at market weight. They're different labor requirements, different management requirements. How do you know what those are? And to answer these first three questions, one of the best things you need to do is talk to growers around the area. Talk to growers that have been in the business for a period of time. Find out what it means to be a poultry grower. When we look at our last point, and this is from a buyer standpoint, is if I'm buying a farm or from a lender standpoint, if I'm looking to loan money on a farm, what are the real conditions of an existing farm that someone is looking at? We see that that mistake gets made often. We don't know exactly what it's going to require to get this farm back up to specifications to get back up in the good working order. And even if it looks like a fairly good farm, you need someone who understands what they're looking at to go look at the actual structure and look at the equipment and find out exactly what the situation is. Get an idea of what the future maintenance costs may be on this farm. Talk to the integrator and find out what kind of upgrade costs may be coming. Maybe they're not. Something doesn't have to be done this year, but maybe five years from now, you can expect a significant upgrade or maintenance cost. You need to talk to someone who can help you with that. Have realistic expense expectations. It has been a fairly common thing when you talk to lenders, finance institutions, I would tell you to expect 30% or 35% expenses. That's 35% of your gross revenue to be paid out of expenses. Well, that's maybe a decent average, but the range varies greatly. You can look from newer houses can have expenses as low as 20% of that gross revenue. Some older houses may have expenses approaching 45% or 50% of that gross revenue. So the variance of that can be major and need knowing the condition of houses, having someone that looks at them closely can help you with that. A quick check you can do is just ask existing the farm that you're buying if it's an existing farm is look at gross revenue. But look at it for longer than three years. A lot of times we'll see get the recommendation get a three year cash flow. Well, that is not necessarily enough. You need to look, I suggest at least five years because one thing is you look at flaw placement. If I get five flocks within the calendar year and year one and four flocks in year two and then five flocks in year five. I've got a skewed three year cash flow average. If I get this cash flow across four years or five years or longer is even better. I can get a more realistic understanding of what the cash flow of this farm can be. They want to get that average across the year of gross revenue from this cash flow. Then I divide that by my utility cost, the average utility cost per year by that gross revenue. And I'm looking for something less than 25. If I get something less than 25, then I know I'm in pretty good shape on expenses. I know this farm is doing pretty good as far as utilities. A new farm, we should get utilities to gross revenue should be less than 20%. If I evaluate the farm and my utilities to gross revenue is above 30, then that's something I need to look at. That could affect how much I'm willing to pay for that farm. So having a good realistic expense expectation and being able to analyze that can be paramount to making a good buying decision. Area number two, we often see for new growers, both new purchasers of existing farms and folks that build new farms from scratch, is misunderstanding of the startup cost. Every new farm or every new purchase will have some startup costs. Oftentimes, a grower will come into a long situation to buy a farm or build a farm and he'll have some cash on hand. And he'll have it in his mind, I've got so much cash, that's going to get me started. It's going to get me some equity, it's going to get me started. Well, you need to consider that cash to include not only your equity position, but loan fees, utility deposits, utility installation costs, it costs a lot of money sometimes to put a water meter in or to bring power across a piece of land, insurance prepays. And there's always other expenses, things that we don't necessarily foresee. So these things can get growers in trouble. The problem that we're trying to avoid here is we do not want to go into the first year behind because we didn't have enough working capital and cash to float the business for the startup period. Let's give a quick example. Say someone's looking at a three million farm for purchase, a three million dollar farm purchase. And this particular grower he has $300 in cash or equity to cover 90% of this loan, so he can get 90% loan with a guarantee, right? So he thinks that's all he needs. But then there's $114,000 and there's $54,000 in utility deposits and startup costs, new shavings, new fuel, you know, fuel for the generator. All these kind of things start to add up. Plus, he needs at least one, maybe even two, according to the bird size, according to the flock length, according to the type of bird. He may need more than that utility cost. He'll have some utility bills come and do quite probably before he gets his first chicken check. So he needs that much cash over what he needs to secure the loan. So he needs, you know, in this case, example, at least $473,000, about 300, just to get the business started on the right foot. And then if he needs any upgrades, that's additional money he may need to pay up front. So not calculating these in to the business loan or not calculating it into my working capital needs is important. Oh, by the way, rolling equipment, am I going to need a new tractor help? If I'm buying a farm and come to the tractor, is that tractor a good repair? I need to spend money. All those things add into the startup costs that may blindside you need to be cognizant of and make arrangements to cover them. Number three, this is probably the hardest one, lack of budgeting and financial discipline. Nobody likes to hear the word budget. Certainly not financial discipline, but it's something that when you're in a poultry business, the successful growers will accomplish this and spend a lot of time and effort and energy making sure it happens. I would suggest that the successful operator, he have at least six months, expenses and work in capital at hand, maybe not on hand, but at hand, the ability to easily, easily get that capital. And that's over and above is expected flock payments, expected loan payments per flock. So having some cushion, so to speak, or having the ability to get some cushion can really save you from getting into a financial crunch, a financial catastrophe that rolls downhill. You may get a cold weather flock that is exceptionally cold. You spend an extra exorbitant amount of money on gas, on gas. You've got to go into your credit card to pay for that gas. That's a bad situation. So having some budgeting discipline, saving some money when you get that good flock check, don't spend it all save some of that money, put it back in a emergency fund and operating capital fund and have it at hand when those problems come up. Equipment breakdowns, litter, heating fuel are just a bad flop. What I see often is what I call paycheck shock. A grower has a good flock of chickens, things go well, finishes on top of a settlement sheet, has a good flock of hens that are laying a lot of eggs, he's getting a good check. And then he starts spending money. Often we call this buying toys or buying shiny things. The next thing you know that bad flock comes or that big heating bill comes or that big maintenance bill comes or equipment breaks down. And now all of a sudden I've got no working capital. I've got my money tied up and other things. And I've got to go borrow some more money or a bottle of credit card at high interest, and that can get you in bad trouble in a hurry. So it must have discipline, must have ability to budget ahead and have financial discipline. So those are our three barriers. I see real quick. There's a lot more, but in our short timeframe, I think those are our top three barriers I see and have seen over the years and others have seen over the years that being barriers to successful poultry farming. Starting a successful poultry business and I'll leave you with this. Time in the chicken house is money in your pocket. And this has been true for as long as I've been in the poultry business, which is over 20 years, it will still be true long after I'm out of it. What we've seen this picture here is the best controller platform in all poultry business. That's a bucket that you go and sit down on in your house and you look at your chickens and you watch what's going on. And you spend time in the house learning about the animal that you're actually trying to raise. And you're able to see what's happening, see how they're reacting, make changes, do the right thing, you get a feel for what they're feeling. So time in the chicken house is money in your pocket. Appreciate the time and good luck out there. And I hope you all the success there is starting your poultry business. Thank you.