RSS

Tag Archives: Cattle marketing

Agproud Q5 F.E.A.R

Question 5 on the Agproud list

What allowed you to move beyond fear and diversify a perspective of your farm/ranch/business?

screwfear

This is a great question! Much has been written on the subject of fear over the last century, and strangely enough, all this time later it is still a huge problem. That is probably because fear is one of the strongest human emotions there is.

First off I’d like to share my favorite definition of fear. It is an acronym F.E.A.R. standing for False Evidence Appearing Real. Now that may need an explanation for some people. Most of the things we fear demand that we believe in something that we can’t see, or that may not actually happen. Fear is an emotion, and as such it tells you nothing about reality other than something makes you feel something.

Since most of my blogging and expertise is in cattle I will continue to focus there for an example. Many people would like to be in the cattle biz. Thing is they conjure up all kinds of “reasons”, more like excuses, why they can’t be. For example I have seen fear freeze people solid when they go to an auction to buy cattle. The most popular excuses are they are afraid, there’s that word again, that the market will go down. They are afraid the cattle may get sick or die. They are afraid the weather may deal them a bad hand this year. They are afraid that if any of these happen they will lose money. They are then afraid that if they lose money the bank will take things away from them. They are afraid of being a laughing stock.

That is quite a list of things to be afraid of, and emotion. We are all human and have all stared these fears squarely in the face. It will suck the energy right out of you.

Some of you may be thinking that I made a list of things that are very real, yet called fear false evidence appearing real. Thing is, all the things in that list are not real, because they have not happened. If you let them stop you from bidding on cattle or starting a business, you just let images in your mind that are not real stop you. Do not create troubles in your mind that have nothing to do with reality and waste precious time. You can’t stop the bad stuff from happening, but you don’t have to let the fear of bad stuff happening stop you from the good things that are happening now. That would be recognizing opportunity. You see everything on that list is manageable, and will provide an opportunity.

Every successful person begins with two beliefs: 1) the future can be better than the present, 2) they have the power to make it so. Every morning when you wake up you have the ability to choose your attitude. You choose what ideas to become emotionally involved in. Whatever you focus on will expand. If you create scenarios in your mind that create fear, you will be given things to be afraid of. The universe has a funny way of doing that. Whatever you think about comes about. You see your beliefs cause your thoughts, actions, and emotions, which when added up will equal your results.

So here’s the trick. Both fear and faith demand you believe in something that you can’t see. Faith is putting your trust in the good. Fear is putting your trust in the bad. You can easily change your future by changing your attitude. Have faith in your best outcome, instead of fear in your worst outcome.

So how do we build faith in such a volatile business? In one word: skill. Yup, here I go harping on skill again. Go back and look at the list of common fears in the cattle biz again. Market crash, natural disaster, death loss, poverty, and humiliation. With the right skills, and the right attitude you will find opportunities in all of these.

I have spent my time, and money traveling around the United States, and even Canada to learn from people that were/are the best. I learned valuable skills from them.

At first I was skeptical that the things I had learned would actually work. I placed some trust in them, and they did work. Overcoming fear and having success builds self-confidence. When you let fear control you, you lose self-respect, and that is a downward spiral. The only requirement is the ability to act, and action is the real measurement of intelligence.

At the end of the day just make sure that your own worst enemy is not living between your own two ears.

Advertisements
 
Leave a comment

Posted by on April 15, 2016 in Uncategorized

 

Tags: , , , , , , , , , , , , , ,

Agproud 2

The second question on Ryan Goodman’s list:

Write about the basics of farming and ranching.

We can have all the discussions possible about the different practices in production agriculture. As I stated in my response to question one, we are in the business of growth and promotion of life. Thing is, it all hinges on one thing: Profit.

To some farming is a hobby, and therefore profit does not matter. For most of us farming is a business, and profit is to a business as breathing is to life. If there is not a profit the likely hood of losing the farm is high.

I spend time everyday looking over market reports. I have them bookmarked on the computer, and on my phone. I just scroll, click, and boom, I have access to weighted averages from cattle auctions all over the United States. Marketing skill is the number one contributing factor to profitability, so it is essential to always be up on this. Since I sell and buy, pot loads every month I must know what is going on with the cash markets.
One thing I do every month is what I call an autopsy. I go over every aspect of my business. Today my business is whittled down to my “hedgehog concept”, the one thing I’m best at. I used to have many more different enterprises. I believed I needed them for diversity, and at the time I did need them. My hedgehog concept became evident to me, through these autopsies. It was clear that I should devote more resources to it and disperse of the other enterprises, making the best use I could of my resources. I look at things like my return on assets and return on investment, and even the time/labor I committed to them

As a result of these monthly sit downs, I know exactly what my break profit cost of gain is, on the cattle I own. Notice I said break profit, and not break even. You can go broke breaking even, so I always include profit as an expense. My salary is figured as an overhead expense to the business, and I figure profit as a direct cost.

Every month I do a budget for the upcoming months. I gauge the accuracy of my budget during the autopsy. I have been doing this for years so I have a good feel for what each month will be like. While doing this I also do a projected cash flow for the upcoming months. This is useful for long term and short term planning.

After completing these tasks I find it much easier to go out and do the day to day tasks. I am not worried about my account balance, or what the market may do, I do not fear having to talk to the banker, and the demons of fear do not come into the bedroom at 2 am, waking me up. Knowing everything is in check allows me to focus with a greater intensity on the wellbeing of my animals, and any other tasks that I need to complete.
Looking after my business is the foundation of what I do. When that is stable I can build from there. One thing I do to reinforce the foundation is to read several business books every year.

Another basic is how you see yourself. If you see yourself as a broke farmer, then that is what you will be. If you see yourself as having a growing, thriving operation that is making a profit then that is what you will have. It is not quite that easy though. The people that see themselves as being a success and firmly believe it, without doubt, are the ones who are willing to go out and learn the things that they need to, in order to make it happen.

I understand this may be a different direction than most would think when responding to this topic. Feeding the livestock, or putting seed in the ground are basic necessities too. You can do those for someone else as an employee, but if the employer doesn’t do the basic task of looking after his business, that employee may be out of a job sooner than later. As capital intense as agriculture is you simply just can’t out earn stupid.

 
Leave a comment

Posted by on February 19, 2016 in Uncategorized

 

Tags: , , , , , , , , , , , ,

529 Plan Updated

My 529 plan was originally posted in March of 2013. In my example here, my daughter would have the original 5 head paid off at age 3.  As an update of how well this can work, my daughter has 8 head fully paid for and a few hundred dollars left over.  The cattle market has been extremely generous this year, making our original investment of just over three thousand dollars in February in 2011 worth over ten thousand dollars today.  I seriously doubt anyone has a college/future investment plan for their kid that has done this well.

In all fairness and objectivity, I am fully aware that this bull market will not last, and the value of her cattle will drop. Even so, she has added three more head than projected, which will generate an income even in the bear market that will come someday.

I also mentioned that the cattle biz will help me teach her life lessons. My buttons pop off my shirt as I swell with pride over how much she knows already.  Most of that knowledge coming from her just being around and observing me.  Seeing as how I have seniors from K-state and UNL calling me now seeking advice on everything and anything to do with the cattle biz, I’d say my little girl is way ahead of the curve in more ways than one.

Her lunch is there on the left.  She is following along during the sale with barn card and pen in hand.  Still a bit young for a cell phone

Her lunch is there on the left. She is following along during the sale with barn card and pen in hand. Still a bit young for a cell phone

cat walks provide the best view.  From here she can see all the action in the yard.  This can provide entertainment for quite awhile

cat walks provide the best view. From here she can see all the action in the yard. This can provide entertainment for quite awhile

 

 

The original post:

Ever since I was a little kid all I wanted to do was farm and raise cattle. Everything seemed so simple back then.  Just grow up and do what you want to.  We all had that dream.  When you get older, and especially when you have a kid, things get real.

 

In the last year and a half I have spent way more time in the lawyer’s office and CPA’s office than I care to in a lifetime. I did not get into the cattle biz to learn all about LLCs, Trusts,  payroll taxes and crap like that.  Thing is I do get to do one money/parent thing I love.  Invest in my kid’s future with nothing other than cattle.

 

A couple years ago I got fed up with the stock market, and pulled all my money out of my Roth IRA, and used the money to buy cattle. I’ve had a 20%, or better, return on my money since 2005 with cattle.  My IRA never did that.

 

So here is my thinking. As a parent it is always a concern of how to pay for college, even though I would not recommend college, or how to at least give our kids a good start.  After Bernie Madoff ,  John Corzine, and computer generated trades I do not trust the markets.  Thing is I know cattle, so I stick with what I know.

 

Here is what I’m doing for my kid. The numbers are based off my last trade just last week.  I know the cattle markets will move so for this example I am going to freeze these numbers for the next 18 years.  Thing is even in the last 8 years I’ve still managed to make a 20% return.  Keep that in mind

 

I market my cattle on a real time cash flow reckoning, so this allows me to always buy back replacement cattle at a profit. You will need to learn how to do this in order for what I am about to outline for you to work.

 

So when my daughter was born I bought her five head of calves. In this example I am using 480# heifers at $1.43 or $687 head.  So five head would cost a total of $3385.  We are going to back ground these heifers and resell them, and replace at a profit.  So in this example we are selling 730# at $1.33.  My real cost of gain is $.93 with a 2.75# ADG so when I add on a 20% return my cost of gain goes up to $1.15.

 

The 20% return is a $55/head profit. Buying 480# calves and selling them at 730# with our rate of gain we get to turn 4 times a year.

 

Now those first five calves I bought for my daughter are financed through the Bank of Dad (BoD). So when we do our first four turns in year one the BoD collects all $1100 of profit and subtracts it from the $3385 that was loaned to the new baby.  At this pace the kid pays off the first 5 head by age three and has $84 left over.  After this point we make the kid reinvest their profits into buying more cattle.  So after four more turns the kid will have enough saved up to buy 6 calves.  I think that would make for a pretty proud four year old.

 

Now I am going to assume you see the pattern here and I don’t need to do all the math for you and show you the year by year turns.

 

By age ten in this example the kid will have 37 head. Since there was an income for a minor dad paid the taxes for them.  By now I figure it’s time to secure voter registration, and make the kid a tax payer.  Ouch!  So just figure between Fed and State tax kiss 15% good bye.  Gotta pay for the roads we are using to haul these cattle.  Long before we get to this point, a responsible parent is having/helping the kid pay bills, and balance a check book.  Lots of lessons to be taught here.  I have a buddy doing this with his kids, and it helps them to see there is a purpose in learning math in school.  Also all the lessons that come from helping, do chores.  Some real character building here.

 

Now by the time the kid is 14 we stop adding more cattle. We stop at 75 head.  That is enough for a pot load.  Also when we stop at 75 head after the first turn we have the rest of the year to do the other 3 trades and save money.  At 14 what kid doesn’t want a car?  So, let them buy one with their own money.  They will have enough.  Also let them pay for some gas, tax, title, insurance and so on.

 

Now after the car is paid for with cash, we have a decision to make. Do we just hold it here with 75 head, or do we keep buying more?

 

For my example here I stopped at 75 head and just started saving money.

 

By 18 the kid will have 75 head of cattle worth $72,000 and saved $39,000, and spent $35,000 on car, gas and so on. So our original investment of $51,500 turned into $146,000 in 18 years.

 

Now I know the doubting Thomas out there is thinking well you didn’t figure feed and so on. That was in the cost of gain and subtracted from the dollar difference between selling the 7 weight and replacing with the 4 weight.  Leaving us with the $55 retained profit.  And it took 14 years to get up to a load lot.  This is a crockpot not a microwave.

 

Now what if we took that $51,500 and invested it into a 529 over 14 years, and stopped and then just let the interest compound for four more years until the kid was 18. At a 10% rate of return we would have $169,000.

 

I really think cattle can compete with a 529, IF you market correctly.

 

This is what I am doing for my kid. Now according to this example the 529 out performed my cattle plan.  Thing is the 529 didn’t give a sense of accomplishment, or ownership like the cattle do.  The 529 didn’t teach responsibility of paying bills, buying and caring for a car, and cattle, managing cash flow, or understanding where money comes from, and marketing skill.  The 529 didn’t teach the kid how to run a business, and looking at how many animal science and ag business majors corkscrew operations into the ground college didn’t teach that either.

 

So when my kid is 18 there will be three choices to make. 1) Go to college, keep the cattle and hire dad  to take care of and manage it and use the income for school, or sell them off and go to school, with the goal of graduating debt free.  2) Sell them off and pursue something else.  3) Continue to do the cattle thing.  And I can tell ya with a track record and cash flow like this even at 18 a banker will finance the youngster, with daddy’s supervision of course.

 

Now suppose I’m half right. And after 18 years you only have a net of $70,000.  Still pretty damn good.   What if I’m half wrong and by 18 you have $300,000?  Wow!

 

My kid is two and already owns 6 calves all on her own. But she gets to take advantage of my buying power too.

 

Dave Wright President of Independent Cattlemen of Nebraska (ICON) said something to this effect once “I raise kids, the cattle are there to help me teach them life’s lessons”

 
2 Comments

Posted by on September 26, 2014 in Uncategorized

 

Tags: , , , , , , , , , , , , , , , , , , ,

Where’s the Benefit? (bread & milk)

Last summer I was in a room of about 40 cattle producers from all over the US, with all kinds of different back grounds and strengths.  I don’t think I’ve ever been part of a more diverse group.  One question that was presented to us was “How does your ranch benefit others?”

Right away the first answer was BEEF.  I will say this, that person went home realizing they are a cattle producer not a beef producer.  There were some ramblings about conserving the environment, and taxes.  Then it was just quiet.

This was something I had thought about before, so I spoke up.  I sell and buy cattle all the time.  I need truckers to move them critters down the road.  That driver uses the money he earned from me to pay his taxes, fuel that he bought somewhere, food from a food service establishment that provides jobs to people, tires and other maintenance, insurance, and so on.  What is left over he keeps the lights on in his house and bread and milk on the table for his family.

I buy feed from family and neighbors.  They must make machinery payments, farm payments, maintenance on the equipment, pay for fertilizer, fuel, seed, and so on.  One guy I buy feed from has three kids, all under the age of three.  He forks out a lot of cash for bread and milk.

Don’t forget the mom and pops feed store I do business with.  They got to pay their suppliers, and employees, along with utilities, and equipment, insurance, taxes, and so on.

I buy cattle in sale barns, who obviously have employees, and other expenses.

You’re getting the idea.   A little bit of money gets spread pretty thin and everyone is trying to pay for bread and milk.

A sale barn needs buyers there to establish a market through open price discovery.  As a cattle buyer I have aided in that process many, many times.

One day I was buying cattle and need to recycle my coffee.  I stood at the top the steps for a moment to see what was behind the gate coming into the ring.  In came a small group of three or four heavy four weight heifers, black.  They would fit a deal I had going, and I needed some weight and some average makers. (average makers are the cattle that get bought cheap, to add weight to a load and lower the average dollars/hundred).  I stood there and watched until the bidding stalled, then jumped in.  I hit them three times, and owned them, improving my average.

Now that scene is no big deal to me.  I do that all the time.  Here is why I remember that day so well.  After I left the head, I went to the office and got a recap (recap is a printout telling me how many cattle I have on each of my numbers, what the average weight and average price per hundred is.  Also tells me total dollars spent and total pounds on each number).  This guy comes up to me and thanked me for buying those heifers I just told you about.  I kinda tried to blow it off, and said “you’re welcome”.  He said “No. You don’t get it.  Every little bit helps.”  I  then stepped outside to call a guy I had just finished putting a load together for.  I watched the guy who just thanked me get into a car with a young woman who was feeding a baby.  He showed her the check and gave her a kiss on the cheek before starting the car and leaving.  I bumped them calves about $25/head.  He got about an extra $100 because me and another buyer pushed them.  Having a little one of my own, I know $100 is barely a dent when it comes to bread, milk and diapers.

I’d like to share another example with you all.  I’m totally bragging here, it’s a good one and I had fun doing it.

The last week before all the kids went back to school last fall, one young teenager was sitting in a local sale barn trying to buy a few calves.  One group of calves came in the ring.  This kid started bidding on them.  They were way too low to just sit there so I hit them a few times.  I pushed them to where they were a good buy and a somewhat decent sale price.  Then I pointed at the kid as a sign for the auctioneer to knock them off on him.

Now to set this up a little better there is always some old asshole that never leaves well enough alone.  Back when I was younger and fiercely needed a few breaks, (good buys) this old grumpy fucker would always jump in and run me.  Well he did the same thing to this kid.  He ran the youngster right up to about what the market was bringing for those calves.

The poor kid shook his head “no”  He was out.  Now, I have NEVER jumped back in on bidding on some cattle after I decided I was out.  I had the money to run this old man, and my anger at him for doing that to me when I was younger came out.  I ran him.   I hung those high dollar calves on him.

This exact same scenario was repeated on the next group of calves that came in the ring.  Everyone in the place got the hint.  We were all going to let this kid have a few calves at a good price, or I was going to fuck with you.  The auctioneer is also the owner at that barn and boy was he having fun with the situation.  That kid got all the calves he wanted (about eight) and he swelled up with so much pride I thought the buttons were gonna pop off his shirt!  Next week he was back in school and I was back at the same barn buying cattle.  I made a win/win situation

Gang, I could list tons more examples of how our operations benefit others.  We often times don’t think they do because we rarely take the time to reflect on it.  This is just everyday stuff to most of us, thing is, it matters to somebody.

 
1 Comment

Posted by on June 3, 2014 in Uncategorized

 

Tags: , , , , , , , , , , , , , ,

Face Palm (bread & milk)

Anger is one emotion that really motivates me.  I’ve had some people nudging me for some time to resume blogging.  Last week my attention was brought to an article that appeared on Cattlenetwork.  It was full of some of the worst marketing advice out there.

Here’s a link.  Remember this is bad stuff.  http://www.cattlenetwork.com/e-newsletters/drovers-daily/Worth-the-Weight-259959381.html?utm_content=&utm_medium=eNL&utm_source=1017H7692790D8V&utm_campaign=Drovers+CattleNetwork+Daily_20140521&utm_term=&page=2   You should never read anything in Cattlenetwork and take it seriously.

 

I already confronted the guy quoted in the article.  It didn’t go well.  At one point I even had to ask him if he was even taking the conversation seriously or if he was just messing around!  It became very clear to me in just a few minutes he has no grasp of the North American cattle biz.

Here’s what really bothers me, and is the reason for me writing this.  I am afraid someone somewhere read this article, believed him to be and “expert” and  is following  his advice, which may seriously affect their ability to pay for bread and milk.  I know most people aren’t in the cattle biz to make money, that is clear, thing is there are some people who are really depending on those cattle to earn a living.  That is something you just don’t screw around with!

I told this guy that all his article needed to say was this, “anytime you can turn a profit, DO IT!”  In the article he mentions having leftover feed.  People, as dry as it is in most parts, including where him and I both live, feed in inventory is a damn good thing.  His advice to feed it to put more weight on your cattle based on Value Of Gain (VOG) is, well, just “beep”ing dumb.

There are three legs you need in the cattle biz, cattle, feed, and cash.  If you have all three your business can stand up on its own like a bar stool.  So if you can sell your current inventory of cattle and replace them with undervalued cattle, then you should take the profit and start adding value to those replacement cattle.  You can’t turn a profit and generate cash flow by holding inventory.  Take Walmart for example, they didn’t get as big as they are by holding inventory, or selling for more.  They did the opposite, turn inventory over lots of times and sell it for less, taking small margins lots of times.

Now I totally understand the VOG thing.  I blogged about it years ago on the YPC Cattle Call page.  Thing is it is not something you make a marketing decision based off of.

Now let me explain why this Kat is wrong.  He said the market is signaling that it wants us to put more weight on our cattle.  I sent this guy weighted averages from multiple states showing that just isn’t so.  Hasn’t been for months.  The buyers have been telling us for sometime now that they want to be the ones to put the weight on them.   Our “expert” confessed to me he based his market outlook off of Salina.  You can’t come to a conclusion based off one sale barn, and post it as if it’s a nation wide deal.  I know this for a fact.  I buy cattle in lots of different states in lots of different barns, including Salina.

Since this Kat is from KS and used 7 weights as an example in his article, let’s look at that.  Here is what was written:

In this example, Tonsor pointed out that the feeder cattle market in June compared to May looks to be higher. If the steer sells at a higher price in June when he is 50 pounds heavier, the value of gain (VOG) is projected to be more than $2, around $2.11, which could well exceed the cost of gain (COG) for producers who have access to feed resources.

First off, this guy must be a gypsy with a crystal ball.  I would not want to play cards with this Kat.  Trying to predict/forecast the future, in this case June, is a form of gambling.  Otherwise known as “betting on the come”.  Yeah, that always works out well, playa.  Like I’ve said before, all it takes is a rising market for an idiot to look like a genius.   Don’t even get me started on what he says about December.  I’ll tell you this, feedlots are about to start feeling some heartburn, but you won’t hear anything about that for several months yet.  Maybe feeders will be higher in June.  Maybe not.  Why risk it?  Take the profit

On the weighted average I sent him from KS a 668# steer brought $2.15 or roughly $1430ish/head.  A 728# steer brought $1.91 or roughly $1390ish/head.  What was the signal again?  Wait, I bet we didn’t hold em long enough and feed enough weight on them.   Wrong playa, Thing is, it gets worse the bigger they get.  And its not just KS, its every state.

The weighted averages for most states from last week aren’t posted yet.  Since I actively market cattle on a day to day basis to pay for bread and milk for my family, I will tell you that the market was inverted.  What I mean by that is the market really rewarded lighter cattle.  At one NE barn 650# steers brought over $1525/head.  7 and 8 weight cattle didn’t bring that much money.  SO, if you sold those 6 weights you could buy back replacement cattle that were 50 to 150# heavier, for even money or even had money left over.  Think about that, THE MARKET WAS PAYING YOU TO TAKE WEIGHT HOME!!  You could buy 8 weights for roughly $40 head more than the 6 weights.  Can you put 200# on for $40?  HELL NO.  Hey, where’s our buddy with that VOG thingie?

I don’t know what is worse, the fact that the guy put this garbage out there, the fact that the author wrote it and didn’t stop and say “WTF?”  We can’t blame Cattlenetwork, they don’t have a brain and don’t want one.  Normally this is where I would suggest they all be fired or quit.  I’m not going to do that.  Having been on the receiving end of vocational terrorism just 14 months ago I know how that feels.  It is my sincere wish/hope that these Kats take some time to learn sound marketing skill, and critical thinking skill and share THAT with the world.

Think about this.  Suppose you do what I say, and take the profit and replace with other cattle.  Suppose the other guy is right and the market goes up.  Now you are set up to take two profits and replace again, making it even easier to pay for bread and milk.

 
1 Comment

Posted by on May 27, 2014 in Uncategorized

 

Tags: , , , , , , , , , , , , , , ,

Cattle 529 Plan

Ever since I was a little kid all I wanted to do was farm and raise cattle.  Everything seemed so simple back then.  Just grow up and do what you want to.  We all had that dream.  When you get older, and especially when you have a kid, things get real.

In the last year and a half I have spent way more time in the lawyer’s office and CPA’s office than I care to in a lifetime.  I did not get into the cattle biz to learn all about LLCs, Trusts,  payroll taxes and crap like that.  Thing is I do get to do one money/parent thing I love.  Invest in my kid’s future with nothing other than cattle.

A couple years ago I got fed up with the stock market, and pulled all my money out of my Roth IRA, and used the money to buy cattle.  I’ve had a 20%, or better, return on my money since 2005 with cattle.  My IRA never did that.

So here is my thinking.  As a parent it is always a concern of how to pay for college, even though I would not recommend college, or how to at least give our kids a good start.  After Bernie Madoff ,  John Corzine, and computer generated trades I do not trust the markets.  Thing is I know cattle, so I stick with what I know.

Here is what I’m doing for my kid.  The numbers are based off my last trade just last week.  I know the cattle markets will move so for this example I am going to freeze these numbers for the next 18 years.  Thing is even in the last 8 years I’ve still managed to make a 20% return.  Keep that in mind

I market my cattle on a real time cash flow reckoning, so this allows me to always buy back replacement cattle at a profit.  You will need to learn how to do this in order for what I am about to outline for you to work.

So when my daughter was born I bought her five head of calves.  In this example I am using 480# heifers at $1.43 or $687 head.  So five head would cost a total of $3385.  We are going to back ground these heifers and resell them, and replace at a profit.  So in this example we are selling 730# at $1.33.  My real cost of gain is $.93 with a 2.75# ADG so when I add on a 20% return my cost of gain goes up to $1.15.

The 20% return is a $55/head profit.  Buying 480# calves and selling them at 730# with our rate of gain we get to turn 4 times a year.

Now those first five calves I bought for my daughter are financed through the Bank of Dad (BoD).  So when we do our first four turns in year one the BoD collects all $1100 of profit and subtracts it from the $3385 that was loaned to the new baby.  At this pace the kid pays off the first 5 head by age three and has $84 left over.  After this point we make the kid reinvest their profits into buying more cattle.  So after four more turns the kid will have enough saved up to buy 6 calves.  I think that would make for a pretty proud four year old.

Now I am going to assume you see the pattern here and I don’t need to do all the math for you and show you the year by year turns.

By age ten in this example the kid will have 37 head.  Since there was an income for a minor dad paid the taxes for them.  By now I figure it’s time to secure voter registration, and make the kid a tax payer.  Ouch!  So just figure between Fed and State tax kiss 15% good bye.  Gotta pay for the roads we are using to haul these cattle.  Long before we get to this point, a responsible parent is having/helping the kid pay bills, and balance a check book.  Lots of lessons to be taught here.  I have a buddy doing this with his kids, and it helps them to see there is a purpose in learning math in school.  Also all the lessons that come from helping, do chores.  Some real character building here.

Now by the time the kid is 14 we stop adding more cattle.  We stop at 75 head.  That is enough for a pot load.  Also when we stop at 75 head after the first turn we have the rest of the year to do the other 3 trades and save money.  At 14 what kid doesn’t want a car?  So, let them buy one with their own money.  They will have enough.  Also let them pay for some gas, tax, title, insurance and so on.

Now after the car is paid for with cash, we have a decision to make.  Do we just hold it here with 75 head, or do we keep buying more?

For my example here I stopped at 75 head and just started saving money.

By 18 the kid will have 75 head of cattle worth $72,000 and saved $39,000, and spent $35,000 on car, gas and so on.  So our original investment of $51,500 turned into $146,000 in 18 years.

Now I know the doubting Thomas out there is thinking well you didn’t figure feed and so on.  That was in the cost of gain and subtracted from the dollar difference between selling the 7 weight and replacing with the 4 weight.  Leaving us with the $55 retained profit.  And it took 14 years to get up to a load lot.  This is a crockpot not a microwave.

Now what if we took that $51,500 and invested it into a 529 over 14 years, and stopped and then just let the interest compound for four more years until the kid was 18.  At a 10% rate of return we would have $169,000.

I really think cattle can compete with a 529, IF you market correctly.

This is what I am doing for my kid.  Now according to this example the 529 out performed my cattle plan.  Thing is the 529 didn’t give a sense of accomplishment, or ownership like the cattle do.  The 529 didn’t teach responsibility of paying bills, buying and caring for a car, and cattle, managing cash flow, or understanding where money comes from, and marketing skill.  The 529 didn’t teach the kid how to run a business, and looking at how many animal science and ag business majors corkscrew operations into the ground college didn’t teach that either.

So when my kid is 18 there will be three choices to make.  1) Go to college, keep the cattle and hire dad  to take care of and manage it and use the income for school, or sell them off and go to school, with the goal of graduating debt free.  2) Sell them off and pursue something else.  3) Continue to do the cattle thing.  And I can tell ya with a track record and cash flow like this even at 18 a banker will finance the youngster, with daddy’s supervision of course.

Now suppose I’m half right.  And after 18 years you only have a net of $70,000.  Still pretty damn good.   What if I’m half wrong and by 18 you have $300,000?  Wow!

My kid is two and already owns 6 calves all on her own.  But she gets to take advantage of my buying power too.

Dave Wright President of Independent Cattlemen of Nebraska (ICON) said something to this effect once “I raise kids, the cattle are there to help me teach them life’s lessons”

 
1 Comment

Posted by on March 11, 2013 in Uncategorized

 

Tags: , , , , , , , , , , , , , , , , , ,

Cattle Biz Headlines

It’s been what, six weeks since my last post?  A lot has happened in the world during that time.  I like to troll around on social media and see how people react to it.  I have come to think I must be kinda dyslexic,  because I see things differently.  Over the last few months I have got to meet a few readers of this blog.  The biggest compliment I get is “I don’t always agree with you, but damn, you sure made me think about it.”

Here very recently my Facebook and Twitter feeds have been full of the news of Japan taking beef up to 30 months of age. (If we have not met in real life do not friend request me on Facebook.  Follow me on Twitter @mrcattlemaster instead)  I saw very little about Cargill closing the Plainview plant.

One of these will affect the cattle biz in a big way.  The other not so much.  While everyone has their pompoms out for the Japan deal I am talking to guys who are facing reality.  Think for a moment.  Will Japan suddenly import more beef from us?  I doubt it.  They will probably just import cheaper beef.  See their economy is imploding in a huge way.  In case you didn’t know they are in way worse shape than the EU or the US.  We are printing $4 Billion a day to prop up the stock market, just to give you some perspective.   (Don’t think that funny money doesn’t spill over to commodities.  If you are in the market in any way get out!  I don’t care to hear your hedging BS.  You tell me that you obviously don’t know what hedging is).  So what will this do for the market?  I have seen very little affect so far, and I’ve been buying cattle just about every day since that announcement.  I think it will be difficult to gain much when we are in a currency war.

One thing that has had a profound affect is the closing of the Plainview plant in TX.  There are groups that think this will be a huge positive for our state.  Couple that with the Japan news and man they got their pompoms and megaphones out.  “NE is the beef epicenter of the world”.  Um ok.   I currently have the privilege of buying cattle for a big feed yard.  The owner tells me that the National buyer has not been there to bid cattle for a couple of weeks.  He called the guy up to find out why.  The buyer told him that he didn’t need to buy cattle in NE anymore.  They can get all the cattle they need in TX and KS.  Less competition down there now.  This leaves only a few major buyers in the yards here.  I spoke to the Cargill buyer in my area last week.  He told me that if I had some fats that I better get them on his list because they are filled for the next three weeks.  As show lists continue to grow I can only imagine the wait will get longer.

Learn a lesson from the sheep industry.  It is my understanding they had three for four packers.  Sheep producers were making money.  When I was in NCBA’s YCC group a few years back there was a buyer from Tyson in our group.  He told me that packers hate each other so bad they will buy cattle at a loss just so the other packer can’t own them.  That is what the sheep producers had going on.  One packer finally had enough of buying at a loss just to keep the doors open.  So they closed.  This left only two or three packers.  The reduced competition has allowed to the remaining packers to bid less for sheep, resulting in the packer making money and the sheep producer losing money.

I do  not understand the meat complex we have in the cattle biz.  Guys, unless you are a packer you sell CATTLE, not beef.  Japan in this case is not your customer.  The packer  or feedlot is your customer.  So do you need more end consumers or more customers?

 
1 Comment

Posted by on January 31, 2013 in Uncategorized

 

Tags: , , , , , , , , , , , ,