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Biggest SBA ag deal in state builds legacy, keeps hungry cattle fed
He says it's kind of funny how his feed lot resembles a hotel, but instead of handing out fresh towels for his guests, he provides "clean water tanks and fresh feed."
Tom Feller's family has been in the cattle feeding business for a hundred years in this part of northeast Nebraska, a remarkable legacy in a tough industry. Most of the beef consumed in the United States comes from feedlots like Feller & Co. of Wisner, where cattle arrive from ranchers after living for six months on pasture and grass to be fed for another six months or so on a diet of corn and other grains. Pretty simple business model, right?
"We have two things we can’t control, weather and markets," said Feller, who has owned the operation since 1985. "Weather can cause cattle not to gain weight and hurt our performance with our customers, or if markets go crazy over things like a drought which raises our feed prices, our ranchers will back away from sending their cattle to us. And you can't take time off--cows are hungry every day. It's not an easy business, and people often come and go."
In 30 years Feller said he's learned to prepare in advance for unpredictable weather and tricky markets by building a solid network of area ranchers that, if all of them demanded room for their cattle, would overflow his lot some 30 percent.
That would be a lot of cattle: since taking over the operation, Feller has built the company's capacity from 1,000 head to 20,000, complete with an on sight grain elevator to store supplies of corn, and has an employee in his cousin’s commodity trading brokerage firm to handle his in-house accounts and hedging strategies. The firm also has added a cattle trucking company to handle logistics for byproduct feed supplies.
And thanks to proceeds from an SBA guaranteed loan, the company's cash flow looks solid well into the future.
Currently, Feller's son, Jordan, who earned a degree in agriculture from the University of Nebraska at Lincoln, is the fifth generation of the family to work in the cattle feeding business; his younger brother, Drew has a degree in animal science from UNL, and plans to return to Wisner to help run the business.
"I’m 58 years old, and I have two boys who want to come back to run the business, so to make room for them, you have to get bigger," said Feller, who started learning the ropes from his dad and uncle some 15 years before he started out on his own. "Basically, I wanted to get more money long term, especially with interest rates low." By setting up a loan structure to finance the operation for the next 15 years, he ensured his sons and longtime employees could step into running the company without having to run to the bank.
"I was getting nervous, thinking, you know, I got to get this up if something happens to me at 65 or 70 years old, so we’re not scrambling," Feller said. "I’ve been bootstrapping it since 1985 building this thing from the ground up."
Building a legacy for the next generation and his employees was one reason to turn to the SBA, "but putting stability into the operation was another," Feller said. "High feed prices have hit us–-with the drought, corn got high, hay got high, so it was a good time to get that debt restructured."
Thanks to a change in eligibility rules from the provisions of the Jobs Act, Feller applied through First Community Bank in Beemer for the highest SBA 7(a) guaranteed loan amount in the state's history at the time. While Feller often had to visit Omaha-area banks for financing, the SBA guarantee was "a heck of a deal" for the small, rural lender, which could consolidate "the land deals over here, equipment loans over there, into one big package."
Feller added that the loan was so large due to current high prices of agricultural land; the proceeds not only extended the existing debt on the lot, but even allowed him to purchase the lot next door, bringing up the operation to 480 acres in feedlot pens. Add another $3 million for equipment, and "it's a big loan, no doubt about that." The deal was approved March 2012.
"The cash flow has definitely increased, and we've put more cash into our current assets," Feller explained. "I have to finance the feed bills and the operations every week and month, so it definitely helped all that."
Feller also offers a breezy, easy-to-read newsletter, The Beef, to keep clients aware of changes to the cattle industry, and his sage interpretation of market factors crucial to making solid decisions in the agriculture industry often is a must-read. It's not just a business with cattle ranchers. "We are not just each other's customer," Feller has written. "We are each other's partner with the same end, bringing safe, healthy, high-quality beef to America's dinner table."
What also helps is the passion Feller has for his profession. "I’ve watched a lot of people start a business, and as soon as they buy or start one, they think they can quit working," he said with a chuckle. "All of a sudden they’re playing golf and soon enough the business fails. If you’re bootstrapping it, you gotta go at it like it’s your last day, you gotta put passion into it. I'm in a business where we’re open 365 days a year, 24 hours a day, Christmas morning, Thanksgiving, daughter’s birthday, that place is open and we’re there. Whether you’re running a quick shop, or a movie theater, if you’re not there putting in the time it’s going to be tough to make it work."
After all, there are hungry and thirsty guests waiting.