Editor's Note: Doug is early this week due to the holiday and will not produce a column on Jan 1.
There is so much conventional wisdom surrounding the cattle biz, and not much of it is good or accurate. Seriously, I think the best thing for a young person to do is be defiant and not listen to any of it no matter where it comes from. In the marketing school Wally Olson and I taught, I spoke about paradigms and where we get them, how they control us, and why they are so hard to replace. So when I say be defiant and don’t listen to conventional wisdom, I am suggesting you don’t accept broken paradigms as your own.
I am going to challenge the conventional wisdom that cattle can’t pay for the land. In the county I live in we are required to have a little over 3 acres in order to have an acreage in the country. I realize three isn’t much but just follow me for a moment.
On these three acres we have a house, and we built a pen. This pen is big enough to hold 100 head of feeders. Maybe it's just one big 100 -head pen or maybe we divide it into four 25-head pens. Hold this thought for a bit.
This week at an auction in Nebraska we could’ve sold 610-pound steers for $1.61 and replaced them with 395-pound bawling steers for $1.70. This trade gives us a Return on the Gain (ROG) of $1.44. This should be higher than our Break Profit Cost of Gain (BPCOG), which is cost of gain with a profit figured in. So we are making money.
At the same auction we could’ve sold 725-pound heifers for $1.3375 and bought back 535-pound bawling heifers for $1.4050, giving us a ROG of $1.14, which should be higher than our BPCOG, so this one makes us money as well.
Back to our acreage. Since we only have 100 head there really is no need for equipment, just some feed storage, buckets and pitchfork. A neighbor, your order buyer, or a salebarn cowboy will haul your cattle for you, so no need for a big diesel pickup and trailer either.
Here’s another assumption, since we only have 100 head, we are working a job somewhere. 100 head isn’t going to require much time out of the day.
If we figure in a $50 head profit on these trades above and do them 4 times a year we can easily make 20K in a year. (Of course, this is with no death loss, or hiccups to make the math come out easy)
With the full-time job and a 20K per year hobby we should easily be able to pay for that acreage. I know some of you are rolling your eyes thinking yeah but that’s on a small plot of land, I want something bigger. Ok just multiply it by 5.
This builds on what I wrote last week about enterprising out your operation. Charge yourself for feed, and pasture rents, and market the cattle in a manner that captures all these expenses and the cattle still make a profit.
Eventually the land will be paid for and the cattle too.
The power of starting small
The problem I see with a lot of young people is they want to start with an operation that is big enough to make a full-time income. You and the operation need time to grow. This is a crock pot not a microwave.
Looking back on my experience I could not have handled a 500-head deal right off at 19 years old. As my operation grew so did I. Some young folks could do it, most cannot. There is the marketing, the structuring of the business, networking, and day to day operations. We grow into these roles as our business grows. Just give it time, and don’t have the attitude that you’re too good to start small.
Looking back on what I just wrote I also blew the myth of “get big or get out” all to heck.
This week the regional auction markets were steady to a little higher. Fats got a little boost. There are some good fat to feeder trades to be made on cattle weighting 1000 pounds and over.
Feeder markets are not paying to put weight on over 900 pounds. Cattle weighing 7-900 pounds cover the COG, and fly weights also have a good VOG, setting the stage for some good feeder to feeder trades like I showed above.
Unweaned cattle were 6-13 back, and there was a 10-dollar discount for fleshy cattle. Some of the local cross roads sale barns had very light runs this week and they were 20 lower.
Keep a few things in mind the next couple weeks. Call the auction barn to be sure they will have a good run of cattle. This will keep you out of the 20 lower market like in the previous paragraph. Also, we are in what I call "tax dodger" season, which means some people are selling cattle, or not selling cattle right now based on their tax situation. A lot of the folks not selling now will typically sell right after the first of the year, and those auctions will get capped (if they’re not already) so call now to reserve a spot for your consignment.
Also think of who your customer is and what you are selling. This time of year, some operations have to be fair to their employees and cycle their time off for holidays. This may make some unwilling to purchase new cattle, especially if they aren’t weaned.
There will not be a blog next week. Some sales early in the week are cancelled for the holidays so there won’t be enough sales to trend anything.
Merry Christmas, and I hope Santa is good to you all tonight.