Best Practices for Using Money From an Extra Flock Check

First Financial Bank
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Are you getting an extra flock check soon? If so, there are several ways to use that revenue to help grow your commercial poultry farming business.

If you’re a commercial poultry farmer, you may receive an extra flock check in a calendar year. Loan payments are scheduled based on the typical number of flocks you’ll grow in one year. Having an extra flock settle in a year means you’ll receive an extra check. As a poultry farm owner, you should consider how it may be most productive to use this revenue: apply to your current debt commitments, augment your emergency fund, or update your farm or equipment.

Generating an Extra Flock Check

When you sign your agreement with your integrator, you’ll agree to a specific number of flocks and grow cycles within a 12-month period. The number of flocks you will receive in a 12- month period is determined by your integrator based on the size and type of your birds and the out times between the flocks. Larger birds take longer to mature than smaller birds. So if you’re raising 4.5 lb birds, you can expect more flocks within the year than if you raise 9 lb birds. The type of bird and target weight will determine the grow time for the birds. Depending on your timing, you may sometimes end up with an extra flock being delivered within a calendar year. An extra flock could mean an extra check that year.

Most growers set up an even number of flock payments per year with their integrators. Four, five or six flock payments are the most common, especially for broiler chickens. Unlike the mortgage on a house or a car payment, which are typically billed monthly, loan payments on a poultry farm are typically set up on annual payments, and are tied to the integrator flock payments. “What typically happens is that depending on the timing of your flocks, you’ll receive an extra check every other year or every third year. For example, if you’re contracted to settle four flocks of broilers per year and settle five flocks within that 12-month time span, you’ll receive an extra flock check,” says Matt Garrett, Ag Lending Officer, SVP at First Financial Bank.

When you settle the flock, the integrator will send your earnings based on your assignment directly to your lender to be applied to your loan payment and escrow account for insurance and taxes. On some occasions, a lender may set up your assignment on based on half flock settlements. If the integrator raises a larger bird where the complex average number of flocks for example is 4.5 flocks per year, this could be beneficial to the grower for cash flow purposes. It would be unlikely though that you would receive an extra flock check based on this scenario.

What Happens When You Get an Extra Flock Check

You know when your flocks will settle, so you should be able to calculate when an extra flock will occur in your loan year. Before that check is sent to your bank by the integrator, you’ll want to alert your lender what you want to happen with that money. If you don’t alert them in advance, they’ll automatically apply a full payment to your loan and update your escrow account to pay your insurance and taxes. Once that money is applied, it is difficult to rescind.

“If all that is good and we can send that extra check back to you, then that’s what we’ll do. We can help advise you on what to do with that money.” — Matt Garrett, Ag Lending Officer, SVP at First Financial Bank.

Pay Down Debt or Invest

When you’ve additional money coming in from an extra flock check, you’ll want to determine how that is to be used. Some of the best practices in business for leveraging additional cash flow is to pay down debt or reinvest in your business.

Pay Down the Principal of Your Loan

At any time, you can apply extra money towards the principal on your poultry loan. Over time, your lender may look to re-amortize, or recast, your loan. When your bank re-amortizes your loan, it recalculates your remaining loan payments based on your new balance. This may reduce what you owe overall on your loan.

Increase Your Emergency Funds

Why should creating an emergency fund be a top priority? As a poultry farmer, you can count on unexpected expenses to arise. From changes in operating costs to unforeseen equipment repair or employee expenses, having extra funds at your disposal is crucial. Having the cash available when needed can save you from having to pay with a credit card and carry a balance with interest.

That’s why it’s always a good idea to have a solid emergency fund. An extra flock check is a great resource that can provide the capital you need for a rainy day.

Pay Outstanding Credit Card Balances

As a business owner, you may be carrying credit card balances. Credit card interest rates can be high and increase quickly. Using your extra flock check to lower, or even eliminate, these balances can help free up your credit resources for future purchases.

Pay Down Your Auto and Equipment Loans

Many farmers have to take out loans to acquire their commercial poultry farming equipment. Depending on the interest rates, you may want to use your extra flock check money to pay down your auto and equipment loans. Also, if you’re leasing some of your equipment and have a balloon payment looming to buy out the loan, the extra check may come in handy. Paying off this type of debt can allow you to invest future revenue in your business and take advantage of other profitable opportunities.

Reinvest in Your Farm

If your loan payments, credit card debt, and emergency funds are in good shape, consider using your extra money to upgrade or expand your farm operations. This could include adding a new poultry house, buying new equipment or enabling you to produce a new product, whether a row crop or other type of stock. You may even want to explore buying additional land to support your plans.

Conclusion

Extra flock checks can happen and be anticipated. Your agreement with your integrator and lender will help you determine how often and when to expect.

There are several ways you can use your extra flock check money to improve your poultry farm and grow your owner’s equity. If you accrued extra operating debt from fuel costs and other high operating expenses, you can pay off some of the costs that you’ve incurred over the year, leaving you more capital to invest into your farm. According to Matt Garrett, “If you know it’s set up on five checks and you’re going to get six, keep an open line with your lender before you sell your extra flock. That way we can do what we need to do on our end to help you.

Our poultry lenders have experience like yours. Want to discuss your plans? Contact us for a free consultation.

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