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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”

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Posted by on September 26, 2014 in Uncategorized

 

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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.

 
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Posted by on May 27, 2014 in Uncategorized

 

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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”

 
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Posted by on March 11, 2013 in Uncategorized

 

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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?

 
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Posted by on January 31, 2013 in Uncategorized

 

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Cycles

I do not pay very  much attention to cycles.  I will admit they do exist.  I see market cycles within the week, the month, a six month period, and even the year and beyond.  The thing is due to the way I market cattle the cycles do not matter at all to me.  Before I learned how to market cattle on a real time cash flow reckoning, I paid a lot of attention to this stuff.  I was listening to the wrong people.  Good thing I got that straightened out or else I’d probably be an unemployed production welder right now. (no offense to the welders out there.  I love welding myself.  It’s just that there have been a lot of layoffs in my area).  I have noticed another cycle.  The cycle of the cry baby

Right now we are somewhere near the top part of their cycle.  They tend to emerge when losses in the cattle biz go beyond $200/head, anything below that we do not hear from them very much.  So I conclude that any losses around $150ish and lower are acceptable losses.  (snorf)  There’s a sweet sexy term, acceptable loss.

I’ll give you a few examples.  In the middle of the last decade 04-05 the “experts” were predicting time periods when we would begin exporting to Japan again after BSE.  So the cattle feeders would load on a certain weight of cattle that would be market ready at that date.  Only the boarder did not open around that date.  These guys would bid a huge premium into feeders, thinking they would get it back when exports resumed.  They really believed they would get $10/ctw more for fats when exports resumed.  They did this several times for over a year.  Losing big money every time.  “It was all Japan’s fault.  They weren’t playing nicely and cooperating.  It was Canada’s fault, after all that is where the dirty cow originated form.  What am I to do?”  The peak cycle of the cry baby

I saw it again in 08-09 when the market fell out of bed.  In summer of 08 corn was high, fuel was high, feeders were high, fats were high.  Then bang!  This housing bubble thing popped.  “During the high run up in stocks the damn hedge fund managers put their money in commodities.  The CME has more corn contracts for bushels than we have bushels.  It’s just all funny money and bullshit contracts, that never should have been printed to begin with.  Then when stocks fell, they pulled out of commodities to buy cheap stocks, which is where they belong anyway, in stocks, and crashed our markets too.  Them assholes!”  Early 09 was peak cycle for the cry baby.

Here’s one that is more current.   Everybody is crying over the drought affecting their operation.  Costs are high (not as high as they were.  Feeders and corn were both higher than they are now).  But hey, it’s not my argument.  “Forage prices are too high.  I can’t afford them so I am forced to buy poorer quality forage.  We need rain.  The price of corn is too damn high.  We need to repeal the RFS.  What is the governments deal anyway?  Picking one corn user over the other.  It’s all ethanol’s fault.  We keep losing acres of forage production and pasture to the plow to raise corn for ethanol”.  Thing is folks I don’t know if this is even the peak yet.  “We need a Farm Bill!  We need to fix this fiscal cliff problem”.

Well I got some good news for you guys.  The 10 year cycle peaks on years that end in 3 (snorf)

Do you notice something here?  They always have something or someone to blame for their short comings.  Bud Williams told me once that in his lifetime of observing and working with ranchers that they are more than happy to lose money as long as they have someone to blame it on.

A few years back I got to go golfing with a few big shots.   During the day we were discussing the cattle biz, sipping whiskey, and smoking cigars.  They were all bragging, and yes it seemed like bragging, about how much money they were losing.  One asked me what my worst move was of the year so far, and I told him I made $17/head.  I got laughed at!  They said $17/head wasn’t worth scratching their nuts for.  I didn’t understand, still don’t.  It’s cool to lose money and not cool to make a small profit?  WTF!?

The cry babies are busy right now.  Last week was cattlemen’s convention in my state.  I didn’t go.  I was busy.  So this weekend I tried to get caught up on the news.  There they were on the TV and news articles bragging about how tough it is.  How resilient they are.  But oh man “If we don’t get some help, or relief soon it will be real bad and people will be out of business.”  That is another natural cycle folks.   Businesses fail all the time.  Bankruptcies happen all the time.  And have since the beginning of civilization.  And yet we have managed to make it to the point we are at now.  A time of such great abundance.  The cry babies didn’t make that happen!

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Posted by on December 11, 2012 in Uncategorized

 

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Its Already a Trend

Give this article a quick read.

 

http://www.salina.com/news/story/haysfeedersclosefull

 

Now I don’t usually write a blog post and put it up right away.  I usually wait a day or two and reread it, before posting and I try to put some thought into them.  This article is almost a perfect reflection of what I talked about in my last blog

I wanna quickly go over some of the points that were brought up.  First they said this is not a trend.  This summer the big feedlot in the county where I live told the local paper,  that they would close if it stayed dry and input prices stayed high.  I drove by that yard two days ago.  They had pens that never had cattle in them this summer, and you could see they had shipped some cattle out of other pens sometime in the last week or two.   Time will tell if they repopulate.  Will this be a trend?  I talk to a lot of order buyers and feedlot owners weekly.  Their greatest concern is if they will be able to find replacement feeders in the near future.  We saw so many calves come to town already this summer  that normally come in the fall, and winter months.  For now it sounds like the bunk space is filled.  And there was the mention of supply lag in heifer retention.  That is a good point.  Right now I know of a lot of people who sold their steers and are hanging on to their heifers to see what happens.   There was the mention of  “do we need all that bunk space?”  I read a cattlefax article a couple years ago that said back then that we had 25% more bunk space than we had cattle!  After the blizzards of 09/10 and the drought of 11/12 taking a huge toll on cow numbers I can’t imagine how over build the feeding sector is today.

If you are new to what I write you are about to find out I continually harp about skill.  The number one factor in profitability is marketing skill.  In the article he blames the drought for high input prices.   Go back several years with me here.  When fuel hit $3 for the first time I heard people in the salebarns whining that it would put them out of business.  I made the retort that if $3 fuel was going to force them out they were already out the door they just didn’t know it yet.  Funny how a guy in his late 20’s was right.  Those producers still have cattle on the yard today, thing is they went broke and now are a grower yard for some big feedlot.  So here is why I bring that up.  There is a quote in there that says “We ship cattle from dry areas to wet”.  Yes we do.  With fuel at well over $4 where I live transportation is still cheap, compared to geographical spreads.  I buy cattle in different areas.  Sometimes a couple states away from here.  I can get them home for $20/head.  Thing is I bought them for $10 to $40 a hundred cheaper than I can buy them locally.  I can pay the driver  $500 to $2000 depending on how far he has to ship them and on a 50,000# to 56,000# load just look at how much money I saved!  They said they were going to wait until the economics improved.  It looks pretty good to me

I can just hear you now “Not so fast my friend.  What about the drought raising the price of corn?”  Corn is not the biggest input.  You can not do anything about the price of corn.  If you buy an 8 weight steer you will need to feed on 550# to get him to finish, roughly.  Here’s a quick rule of thumb I use and it’s usually pretty accurate.  Take the price of corn per bushel and divide it by 5.6 and you will be close to the cost of gain in a custom yard.  So today that would be around $725 per steer.  But an 8 weight steer will cost you around $1100 to buy.  Funny thing a 1000# steer also costs $1100/head.  Just to be sure my point is clear.  We can’t do anything about the price of corn or fuel.  We can control how much we spend on replacement animals and the type of animals we buy.

Look how much money we just saved by buying the right animals!  That’s marketing.  We don’t need to wait for economics to improve.  The markets are blessing us with opportunities to profit right now!

Because this yard lacks the proper marketing skills their employees are forced to move or find other jobs.  Not to mention the impact this will have on the local community.  There will be millions of dollars that will leave the area.  I’m talking everything from the fuel they buy, supplies, parts, payroll, meals, feed, taxes, and the list goes on and on.

They said they are going to remain competitive even in a drought.  When you close the gates and step off the playing field that is a forfeit.

 
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Posted by on October 17, 2012 in Uncategorized

 

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Screwed Up Tape

As I write this this morning, I am just amazed at people.  I have been busy haying, (I got my hands on acres and acres of CRP) and preparing for the speech I was asked to give, which was on Tuesday.  I have still been watching Facebook and Twitter.  The thing that amazes me is how people are so wound up over this drought, and this morning I guess there is some meaningless report that is going to make the markets go crazy.  Let me share this quote from Bud Williams “The best way to alleviate the pressures of drought is sound marketing skill.”

EVERYBODY KNOWS how to market cattle (huge emphasis on sarcasm).  Yeah right.  That is why we are hearing the guy next to us brag about how rough he has is and he can’t pay his bills.  Or we see it all over social media that farmers need drought assistance, and livestock producers need even more of it.  What the hell happened to all the record profits that everyone SHOULD have made last year?  They spent it.  I see all kinds of new pickups at the sale barn this year.  These guys sold $1000 calves right off the cow last year and this year they are selling $500 and $600 calves, weaned!  Funny to me how everyone is broke.  I read yesterday that last year farmers invested more money back into their businesses than ever before.  Almost 25% of that investment was in livestock.  I was just stunned how people were paying such high premiums for breeding stock.  $2200 bred heifers is not sound marketing skill unless you are the seller.  But cattlefax and all the cattlemen associations were predicting higher prices and we needed to “Get cowed up”  Today those heifers are worth $900 bucks, and people can’t afford to feed them.  Here’s a tip.  Never listen to any cattlemen’s association, or cattlefax on marketing predictions.  Here is another one.  After such a great year, like 2011, expenses will always rise to meet available income.  So resist the temptation to avoid the tax man by buying this and that, that you’d like to have.

As far as wanting some assistance from the government.  Why do farmers hate the free market system so bad?  People always say they don’t want the government in their business, but when the shit hits the fan, they cry like a little bitch for uncle sam  to help.  PU LEEZE!  I also notice that most of my farmer friends post stuff on Facebook like “If you can afford tattoos, cigarettes and beer, then you do not need foodstamps”  or “welfare recipients should be mandatorily drug tested”.  Get in line.  If you can afford a new pickup, and $2200 heifers then you don’t need drought assistance.  If you get your government bailout then maybe you should be drug tested to.  I mean the way people spent money the last year due to record prices only tells me  they had to be high  on something.

So how screwed up are things right now?  I don’t notice very many people taking advantage of the wonderful buys in the sale barns right now.   We see various operations all over the country get cork screwed into the ground  by people with animal science degrees.  They have the ag-econ 101 mindset of buy low sell high.  Hello!  Why aren’t you buying?  Oh yeah.  That meaningless report.  Here’s another tip.  Like produces like.

 
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Posted by on August 10, 2012 in Uncategorized

 

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