This week I heard something that put a bur under my saddle: Some folks think that we need to rally the alphabet soup of industry organizations to get legislation introduced to prevent what they perceive as market manipulation.
I guess the laws we have are not enough. Here’s the thing about that: Do you want even more people telling you how to go about your business? If we get some kind of legislation there will be unintended consequences. Name one thing the government has gotten involved in that they haven’t made worse. If you want a law passed that will affect your customer it will also affect you.
Further, if you place a cap on failure you will inadvertently and consequently cap success. It’s a matter of cause and effect and of equal and opposite reaction. If you want legislation passed I question if you are really an independent cattleman. This is a marketing blog and that’s as political as I’ll get.
The question that surprises me that the smart people haven’t asked is why aren’t the packing plants that closed four to seven years ago being reopened? I guess everyone has forgotten that.
Many people are throwing their sucker in the dirt and having a fit. But you can throw a fit all you want and when you’re done you’re still a price taker. If you’re one of those throwing a fit right now and resisting change it’s a signal you’re not independent, you’re a part of the herd.
Moments like this are when sell-buy marketing shines. Sell-buy is marketing on a real-time, cash-flow reckoning, which allows us to be self hedged in the cash market. What that means is we profit when we buy and we are in charge of the buy. Our ability to replace cattle at a profit dictates when we sell, thereby giving us control.
This week fats traded at $1.09, so instead of calling your senator you should have picked your sucker up out of the dirt, washed it off and called your order buyer. That $1.09 price may not seem too whoopy to some folks. However, when we sell in a low market we buy back in a low market and the two lows cancel each other out and what we have left is the margin. Margin being the space between the animal you sold and the animal you bought. Be sure it’s wide enough to be profitable.
If selling fats, on Wednesday you could have bought back five-weight and smaller steers at a profit, and seven-weight and smaller heifers in Bassett, Nebraska. On Thursday you could have profitably bought back 650-pound and smaller steers and any weight of heifer in Salina, Kansas. Most of those trades had $40 to $60 profit. On the smaller cattle it would have been more than $100. I made these calculations using the weighted averages, not actual drafts. Weighted averages smooth out a data set. The trades would be much better using actual drafts because it would be more volatile and profit-laden, and some of the best buys won’t be represented on the weighted average.
Cash flow is the fuel that drives a business. I just outlined positive cash flow. Absolute price movement and direction isn’t what is important, marketing skill that generates positive cash flow is what’s important. I know of people who lost money in 2014 so that blows out the idea of a bull market being profitable.
We have now seen the market rise then drop. These market jags are what exposes profit potential. A market that moves up and down is a healthy market. You can’t forecast profit so we must learn to go with the flow.
If you are a young person wanting to get into the cattle biz, I want you to think about this. This is an $80 billion per-year industry. We are seeing right now that it is full of incompetence when it comes to marketing. That means a ton of money gets left on the table. If you have good marketing skills you can capitalize on that. You should be very excited because that means you can get in on the ground floor and grow.
This week when looking at the value of gains there seems to be a bit of a lag in the six- and seven-weight range. All other weights have a value of gain that will enable profitable trades, including fats, as I stated earlier.
Unweaned cattle were $4-6 back and feeder bulls were $7-13 back.
The pairs I saw sell this week rebounded sharply. Many sold in the $1,500 to $1,850 range, and these were mature cows. This is creating a nice spike in the cow bell curve, providing an opportunity to deflect depreciation by selling those pairs and buying back a younger female that will appreciate in value and putting some cash in the pocket.
It was a good week. Too bad a lot of people’s suckers are still lying in the dirt.