Colorado Lenders and State Programs

Feedlot Financing in Colorado: Capital Intensity and Lender Expectations

A feedlot ties up money in cattle, feed, pens and equipment at the same time. Lenders know that, and their expectations reflect it.

Why are feedlots so capital intensive?

A feedlot carries inventory worth far more than the yard itself. Cattle are bought, fed for months and sold, and each pen holds a large sum in animals and feed. Add facilities, mixing equipment, water systems and manure handling, and the capital need becomes large before you sell a head.

That is why feedlot financing usually has several layers: a real estate or facility loan, an equipment loan and a large operating line. We cover the general method here; specific amounts come from your lender.

Colorado feeding is concentrated in the northern part of the state around Weld County, close to Greeley, where feed supply, packing plants and a deep base of lenders sit nearby. That proximity helps, but it also means lenders have seen a lot of feedlot files and will compare yours to others.

What lenders usually want to see

Lenders look at management first. Feeding performance records, death loss history, closeout reports and your risk plan tell them whether the yard is run well. Experience matters, and a new operator may be asked for a larger equity stake.

They also look at margins, cost of gain and how you handle volatility in feed and cattle prices. Ask your lender for a list of required financial statements early.

Many feedlot lenders also ask about customers and cattle sourcing. If you feed cattle for outside owners, show the contracts, the yardage and feed markup terms, and who bears death loss. A custom-feeding model has different cash flow from owning every animal.

• Closeout reports by pen
• Cost of gain and feed conversion history
• Death loss and health records
• Equity position and debt schedule

Managing feed and price risk

Because corn and cattle prices move, lenders often ask how you hedge or protect margin. Options include forward contracts, futures and options, and insurance programs. USDA Risk Management Agency information on livestock insurance is a place to start, and USDA ERS publishes cattle and feed analysis.

Be honest about what you do and do not use. A lender would rather hear a clear risk policy than an optimistic guess.

Regulatory and environmental items

A Colorado feedlot has permit and environmental obligations related to runoff and waste. A lender wants proof you are in compliance, because violations can become a financial problem. Ask the Colorado Department of Agriculture and the relevant state environmental agency what applies to your size and location.

Get permits and inspection records into a single binder before you apply. It saves time and shows organization.

Comparing lenders

Compare local banks, Farm Credit associations and any lenders with feedlot experience. Ask about advance rates, borrowing base reporting, covenants and how they treat cattle and feed inventory as collateral. FSA may help in certain situations, and you should confirm what applies.

The farm money guide and the beef cattle guide explain basic terms you will hear in meetings.

Ask how often the lender wants inspections and reports. Some require monthly inventory and borrowing base certificates, and a missed report can trigger a default notice. Know the reporting calendar before you sign, not after.

The people side of a feedlot loan

Lenders lend to managers as much as to pens. A yard manager with a long record of good closeouts is an asset, and a lender may ask what happens to the operation if that person leaves. Cross-training, written procedures and a succession plan all help.

Labor is a cost and a risk. Ask the U.S. Department of Labor about wage and hour rules that apply to your workers, and OSHA about safety obligations around cattle handling and equipment. Safety problems become financial problems very quickly.

Keep a binder or shared folder with last three years of financial statements, tax returns, permits, insurance certificates, equipment lists and pen-by-pen closeouts. When a lender asks for something, you can hand it over the same day, and speed signals competence.

Before you apply

Prepare a projection that shows the yard at full and partial capacity, and what happens when margins turn negative for several months. Confirm all current terms with lenders, and consult a licensed professional. This is education, not financial advice.

A little humor helps in a thin-margin business, and farm.FM has farm satire and a story on feedlot economics, plus its agribusiness pages.

Sources and further reading

• USDA Risk Management Agency: crop insurance
• USDA Economic Research Service: farm economy data and analysis
• Colorado Department of Agriculture: state agriculture agency
• Farm Credit: cooperative agricultural lending network
• FSA Farm Loans: FSA direct, guaranteed, microloan and emergency loan information
• USDA AMS: marketing and market news

Ask locally: Talk to a feedlot-experienced ag lender, a CSU Extension beef specialist and an accountant who knows livestock inventory.

General education only, not financial, legal or tax advice, and Colorado Rancher Loan Guide is not a lender. Rates, terms and deadlines change, so confirm current details with the lender or agency.