June 19, 2009

Buying and selling a dairy herd: A guide for purchasers and vendors. Part 3: Vendors’ advice.

Agriculture, farming, husbandry, management, business, trading, buying, selling, practical advice, purchasers, vendors, contracts, avoiding pitfalls.

Vendors’ advice

By Ric Dawick

Purchasers also take note: This section contains valuable information that will assist you in buying your herd.

You have a new partner!
The dynamics of your herd ownership is about to change. Once it is has been sold, be prepared that you are not going to have a normal dairying season. You now have a new ‘partner’ with a vested interest in your cattle who must now be considered/informed in all farming decisions you make affecting the herd - especially if you are sharemilking with ‘fiduciary employer responsibilities’ to juggle as well.

Preparing to sell
Some excellent selling information can be gleaned from the advice above but before any Agent or purchaser steps on your farm to view your herd, tidy it up. A good tip while doing this is to take the position of a buyer to consider what would put you off buying it.

DON’T fall into the all too common mindset of - 'the buyer (or Agent) will see past that, wont they?” Frankly, complacency never works, and depending on the scale of the transaction, may set a false impression that you:
  1. Are not a motivated seller.
  2. Care little about detail.
  3. Could be unreliable about calving records, herd condition, animal health, etc.
  4. May even be difficult to deal with.
As with a lot of things first impressions count a lot. If you are going to employ the services of an Agent, then treat the first visit as if a potential buyer is coming. The fact is Agents are potential buyers! If an Agent leaves your farm genuinely enthused with your presentation, then you are half way to selling your herd.

So do not put your Agent in the position of having to make excuses why your herd looks untidy etc. to potential purchasers. A huge amount of investment money is at stake for all parties, but sadly poor presentation and lack of preparation happens far too often so make sure you avoid this by the following checklist.

  • Having all your records 100% up to date.
  • Culling or drafting aside anything you would honestly not buy for yourself. Be aware that these animals have nothing to do with the Purchaser’s rejection rate (normally 10% but can vary). Also aged cattle and any with three functional quarters etc., do not qualify either. True ‘Rejection Rate’ cattle must always be genuine sound stock.
  • Replacing all missing ear tags.
  • Ensuring your tags/IDs absolutely match your database records – this is extremely important as purchasers can rightfully claim compensation from you if incorrect.
Records needed
Gather up all your records into one place and make up a herd CV folder.
  • Your current Herd Test; Herd Profile records.
  • Last year’s final Herd Test.
  • Latest Animal Health records (TB and EBL status certificates, Leptospirosis certificate).
  • Somatic Cell Count reports (Dairy Company milk dockets as well as the Herd Test SCC reports).
  • AB technician’s insemination book.
  • Natural mating chart.
  • Veterinarian’s pregnancy diagnostic (PD) reports (if relevant)
  • Any other information that will give a good honest impression of your herd and capital replacements.
Also important
  • Provide the Agent with a copy (if you are selling through one) to pass on to interested buyers to gain a thorough background before viewing the herd.
  • Offering refreshments before showing the herd gives you and the buyer a chance to get to know each other and a great opportunity to sell yourself.
  • Inviting genuinely interested buyers to approach the professionals involved with your herd, i.e. veterinarian, farm advisor, AB technician and if you are sharemilking, your employer. Being an open book will set a favourable impression.
  • Extending an invitation to milk the herd. Providing all goes well, it will often lead to an offer.
If you employ a manager or farm workers, see that their knowledge of your herd is sharp and are especially vigilant during mating time, detecting anoestrous cows and accurately recording service dates. Ultimately, if too many cows calve outside of their due recorded dates, this will rebound back on you.

Inspections, securities and credit checking.
Sit down with the purchaser and diary in advance all monthly inspection dates, the drafting day, the final inspection date and trucking date. If Agents are involved include them in too, as all parties should be present on those dates. Maintaining excellent communications between all parties throughout the contract’s tenure is the key to a successful closure on delivery/settlement day.

In capital dairy herd transactions NO livestock company or private agent guarantees payment.
The normal 14 day terms for livestock auctions (i.e. saleyards and clearing sales) and paddock sales, conducted by reputable Stock and Station companies where ‘the company guarantees the buyer (legally termed a ‘Del Credere’ policy) does not apply to capital herd sales.

This is to cope with the huge bottleneck of herd sales transacted every year on 31 May and 1 June involving substantial amounts of monies that stretch even especially arranged short term bank over-draft arrangements to the limit. Hence why herd sales are treated like real estate sales. Payment must to be paid up front by the Purchaser before delivery can be allowed.

Once received Stock and Station Agency companies and solicitors then convey these payments on to Vendors (less service fees for discharging mortgages, liens, commissions etc). While a competent Agent (if involved) would have approached the purchaser about payment before stepping onto your farm, it still is advisable to satisfy yourself that everything is in order before signing too.

Letter from bank or solicitor
Immediately after signing request from the Purchaser that a formal letter from their bank, or solicitor, is to be sent to you or your solicitor, to substantiate proof of payment. Your contract should have clear finance and payment terms covering these matters and more - check that it has. Should you have any doubts do not proceed with signing – even if an Agent is involved, until these matters are sorted out to your satisfaction.

Note: Where no agents are involved be absolutely clear who is paying GST to Inland Revenue and write it into the contract.

To expedite the payment process, check early to see if there are any registered charges against your livestock under the Personal Securities Act 1999. If you are unsure, approach your solicitor or livestock company to check. If you have any, they must be discharged before the settlement/delivery date in order to give clear title to the purchaser on the delivery/settlement day.

Recommendations for a smooth ‘delivery/settlement day'.
Paying full attention to the following key points will avoid stress and expensive claims, on or after the delivery/settlement day. These are:

1. Condition score at delivery - don’t make it a problem
There is no middle ground on condition score. Financially there is a lot at stake for all parties and your delivery day presentation will either be highly phrased or soundly criticised. The key factor is to plan ahead so that everyone wins.

Important: An agreed CS is lowest expectation you must meet and NOT the highest! Any misunderstanding of this point can create testy relationships especially if the destination is inter-island (if it is, ask to be informed as early as possible).

Knowing where you stand means you can confidently forward plan your feed budget plus when to precisely start progressively drying off all light conditioned lactating cows - especially in-milk two year heifers and three year olds. Even if you are knowledgeable about condition scores still seek your Veterinarian’s expert opinion at critical times of the season as a back up of the herd’s progress.

This will stand you in good stead with your Purchaser plus give you peace of mind. However it is important to note if a C S challenge does arise an independent Veterinarian will probably be employed whose qualified opinion will be binding on both parties. If this is not included in your contract then make sure it is. The 2007 Allied Farmers Livestock Limited’s contract comprehensively covers this matter to equitably protect both parties.

2. Make sure the calving dates are as accurate as possible - YOU are guaranteeing them!
It’s imperative for your peace of mind to Pregnancy Diagnose (PD) your cows to verify calving dates (A thought - a prudent gesture could be to invite the purchaser’s veterinarian to do it). All natural mating dates after AB has finished must be faithfully recorded to avoid late calving date claims.

Attention to detail here is extremely important. In the Allied Farmers Livestock Limited's contract for example, there are two calving warranties. The 'Calving Duration Warranty' and the ‘Individual Calving Date Warranty’. Both clauses are very specific and incorporate sensible calving tolerance criteria that once exceeded, invoke penalties to compensate fair purchaser claims.

The best action to take is to PD all mated sale cattle no later than six weeks after AB has finished, AND six weeks after all service bulls have been removed from the herd. This becomes especially important if you employ a manager or farm workers. A responsible approach to this job is to imagine yourself in the purchaser’s position at calving time, and what their likely expectations would be.

3. Double check all ear tags
Double check all ear tags. Make sure they correctly correlate to lifetime ID’s. Purchasers can rightfully claim full reversal monies plus cartage if proven incorrect. (For more comprehensive see information on ear tagging in the purchaser’s section)

4. Tidy up any missing Animal Health Board (AHB) tags
As soon as you have signed, start tidying up any missing AHB tags. Don’t put this job off until trucking time. That’s when everyone else is doing the same causing tagging manufacturing companies to run short at critical times - in your case trucking time. The law is very specific on this matter. Trucking companies by law cannot uplift any cattle if they don’t have AHB tags correctly displayed in their ears. Consequently settlement payments will be held up until rectified.

5. Transfer Location Certificates
The best times to pass over 'Transfer Location Certificates' to the purchaser are on the drafting or final inspection days. Handing them over does not give the purchaser clear title – only full payment does.

Your solicitor should approve this, once the purchaser’s finance has been confirmed in writing. Order them as soon as possible or electronically transfer them to the purchaser’s database after your solicitor’s approval. Similar to AHB tags LIC get bogged down with late requests – DON’T be caught out on the delivery/settlement day.

6. Double check all tallies
When trucking: Preferably with the purchaser present (or their representative) check all tallies with the carrier’s when counting onto trucks. Recount again if you do not agree until it’s right. If there are any tally variances where you, the purchaser (or representative) could not be present, then the carrier’s tally will be deemed legally correct.

When droving: When droving, count the stock twice into a paddock near the farm’s boundary gate before exiting your property, an agreed run-off or grazier’s agistment property. Once your cattle have left the farm’s boundary etc, tallies become the purchaser’s responsibility.

7. Animal Health Board Status Declaration forms
These are your last delivery requirement. Finally, do not forget to provide a fully filled out signed AHB approved 'Animal Status Declaration' (ASD) form to the carrier before the stock leave your farm or agreed grazing property. Should you inadvertently overlook this statutory requirement, delivery will inevitably be held up until remedied. Don’t let this simple task spoil your deal and purchaser goodwill at the last moment.

At the end of the day everything written above is good old fashioned common sense that New Zealand farmers are blessed with in plenty.

This material is provided in good faith for information purposes only, and the author does not accept any liability to any person for actions taken as a result of the information or advice (or the use of such information or advice) provided in these pages.

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