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When in doubt, buy a cow

Looking at the investment proposition behind crowd-farming platform Livestock Wealth.

Livestock Wealth is a crowd-farming investment platform, which allows people to own cattle without having the land, staff or the know-how to be a cattle farmer. Founder Ntuthuko Shezi says he started the company because conventional investment products, like shares and unit trusts, were too complicated and often too intimidating for the common person to understand.  

“My personal frustration in trying to invest in the stock market, and choose which shares were the best, got me thinking…” says Shezi, adding that “before money was in coin and paper form, cows were the store of wealth”.

For R10 495, potential investors can buy their cows online, or through a mobile application, and Livestock Wealth manages the cattle like an investment portfolio, for a monthly service fee of R295. Once a cow gives birth, its offspring is yours and you get the proceeds when the seven-month old calf, or weaner as it is more appropriately called, is sold. That income is akin to a dividend and ranges from R4 000 to R5 000, depending on the prevailing rand per kilo price of weaners in the beef market. However, with the added R100 insurance fee, if the cow dies or is stolen, the investment is protected. Paying R394 over 12 months means you would need to sell your weaner at R4 728 just to break-even.

Says Shezi: “We know that, with insurance, there won’t be much of a return in the next couple of years. That’s because the insurers have charged us quite heavily on that front. But we do hope to get that down to about R40 or R50 once we start to have a bigger herd. We also want to bring the price of the cows and monthly fees down.”

Without insurance, he says you can earn a return of about 8% which, given the inflation outlook over the coming years, is a real return of 2-3%.

“The return on capital of beef farming in general is fairly low,” says Ernst Janovsky, senior agricultural economist at Absa Agribusiness. “I would say it’s about a 4-6% [return] in the long run.”

However, it is a nice asset class to be exposed to; it is anti-cyclical – cows are sold during downturns to bring in cash – and, as soon as prices become favourable, people avoid selling to create an artificial shortage, driving beef prices up further. Also, the drop in the value of the rand has made beef more appealing as an export.

Says Janovsky: “There has been a change in the beef industry globally whereby, even with higher production volumes –  like the current environment in which there is increased slaughtering because of the drought – you would expect prices to start coming down, but they are holding firmly. And that’s because China has gone from being a net exporter to being a net importer of beef. And that’s been growing since 2012.”

Risky business

The problem with investing in capital is that there are added risks, like drought and disease, that can wipe out your entire investment. Things can go very bad very quickly, as per this 2013 farmer’s weekly article, where investors who leased dairy cows to a farmer lost millions after their livestock simply disappeared.

“The investment opportunities within beef are growing quite nicely…but one outbreak of a disease like foot-and-mouth and you can lose all your profitability very quicky,” says Janovsky.

Shezi says their farm has not been as harshly affected as other areas in the country, saying “they picked their farm area very carefully” and had received enough rain over the last two months to ensure grazing for the coming winter.  

Grand plans

Launched in October last year, the company started with 40 cows, putting the 26 that were expectant up for sale. They sold out in the first three weeks to investors both locally and abroad. The cattle are held on a farm in Vryheid, Kwazulu Natal, where Shezi leases about 680 hectares from a local farmer, who liked the concept so much that he’s now on Livestock Wealth’s board of directors. But the plan is to have 1 000 cows on about 3 000 hectares by the end of the year, Shezi says. Next week it will be purchasing 50 more cattle and the next sale is scheduled to be in the first week of March.

Says Shezi: “We only put the pregnant cows up for sale because it’s a way of guaranteeing the investors return over the next year. All but one have already given birth, and the calves are about three months old. On Saturday we will be taking a trip with 21 of our investors to go and show them their cattle for the first time.”

On how investors can be sure that their investments will yield a return every year, Shezi says it’s a matter of nutrition and expertise, which ensures a high probability of pregnancy every year.

Currently, the Livestock Wealth app allows you to buy your cow and name it. But there is no other way to keep track of its growth and well-being, other than receiving images of the cow that are sent through the app. In future, investors will be able to keep track of exactly your cow is of the farm, “much like you can keep track of your Uber,” says Shezi.

Livestock Wealth is fast-gaining momentum, with the start-up having secured R1 million from Bank of America Merrill Lynch and The Innovation Hub. And there are already ten investors who have pre-ordered their cows and paid in full. Meanwhile, 60 others have been running debit orders to purchase their cows on lay-by over periods of three, six, 12, 24 or 36 months.

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Having farmed for 42 years reading this gives me the horrors. 63 hectares in Vryheid???? 3 hectares per cow??? This must be some fantastic veld. Who is the manager? Lots of unanswered questions. These things can die, get stolen, fall into dongas or just get sold when cashflow dries up. What happens when the investor decides he wants to take his cow home? Or slaughter it for some cultural ritual. Who buys the bulls that will be used to keep them pregnant? I know of a similar scheme where a farmer owns dairy cows, and leases them to professional dairy farmers, ie farmers that know what they are doing. Innovative as it may be I foresee huge losses going forward of investments just disappearing.

Did I miss April 1st? This is daylight robbery!

Working on a weaner weight of 233kg (the average for the last 5 years) and a weaner price of R18.10 (5 year average) the value of the weaner would be R4217. The R295 service fee and R100 insurance over 12 months comes out at R4740! The average weaner weight has steadily dropped over the last 5 years from 248kg to 222kg – a 10.25% decrease, Weaner price R18.82 to R19.64, just a 4% increase. To get a weaner weight of 230kg+ takes allot of input, these input costs have dramatically outstripped the rise in price (possibly the decrease in weaner weight reflects the higher input costs i.e. cost cutting on feeds, innoculations etc.).

3 hectaes per MLU is about right with good veld but costly supplementation licks would need to be fed, a cow will not produce a heavy weaner if she has no reserves built up over winter let alone get into calf.

All this assumes you have a 100% conception, even the best farmers are not capable of averaging 90% or more. What happens when Daisy doesn’t conceive? Sorry mate she’s N.I.C. this year but here is the invoice for the upkeep.

Insurance against loss – stock-theft & disease etc. What insurance company is this?

Put the cost of the cow and the service/insurance fee into a Money Market and you will get a better return without the hassle.

The service fee is 81 cent per day. You cannot supplement a cow at that cost so she will lose condition, be NIC and game over.

Agree apart from being able to sit at the dinner table and crow to your friends about the farming that you are doing and they will gush and think you really are a booitjie, you are being ripped off and will lose your cow/investment.

1 MLU per 3 hectares is damn good in this country, must be a 100% non brittle area, my area was 1 to 6. Karroo is 1 sheep to 10 to 15 hectares.

They can lease my farm for 5% of market value to farm cattle, as long as I don’t own a single one. Guess who will be making all the profits?

Complete waste of an article. Absolute rubbish.

Livestock Wealth is fast-gaining momentum, with the start-up having secured R1 million from Bank of America Merrill Lynch and The Innovation Hub. And there are already ten investors who have pre-ordered their cows and paid in full. Meanwhile, 60 others have been running debit orders to purchase their cows on lay-by over periods of three, six, 12, 24 or 36 months

Lay-by to buy live stock??? Merrill Lynch can right this R1million off right now.

Hey, Mfo! You want to be a weaner (!) give me R10 495, I impregnate a cow for you, and charge you R295 per month just to service your cow, for investment purposes. C’mon people!!! Is this really an investment scheme worth writing about? When a guy, says that investing in shares was all too complicated for him!
I would put that amount into MTN and get me 82 shares, with a potential of a minimum of R10 dividend per year, or R1264 on my total investment per year. if, if I wanted a better return in the long run, I would simply buy Sirius get me 1312 total shares, with a 3.6% return that is going to grow in leaps and bounds in the coming years, and is Euro denominated. Save me the pregnant cow!

I like the concept. I just can’t figure out how this is a good investment, the numbers just don’t add up.

End of comments.





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