This week I received a lot of peer pressure to write about certain things, and to be a part of certain movements. On this blog I stick to the profit motive using real-time cash reckonings. I am fully aware of the dramatizations on social media about how messed up the cattle business is.

How messed up is it, I wondered?

My daughter was born in January 2011. A couple weeks later I went to an auction and bought her five little heifers. I grew these heifers, resold them, replaced them and have been repeating this process ever since. The first five head cost a little over $3,000. I deducted feed expenses and I kept all the profits until these first five were paid for. After that I started reinvesting her profits into expanding her numbers. Today she has seven times as many.

My daughter’s cattle are to provide for her future, whether its college or having her own herd. So I compared investing in cattle with something more traditional, the Dow-Jones average. In January 2011 the Dow was 12,000 points, and today it’s 21,000 points. This is a 75% increase, which isn’t too shabby. The original $3,000 would be worth $5,200 today.

During the nine years of her owning cattle, there have been three major market meltdowns. We used that to our advantage on buy-backs to expand numbers. In February of this year we traded 70% of her inventory, and just did the other 30% this week, taking a $50-per-head profit. If I add what we could sell her February-bought cattle for to the amount we paid for the cattle this week, her inventory valuation is over $24,000. Compared to the original $3,000 investment that’s more than 700% increase.

My best friend is doing this same thing with his kids. And they were buying cattle for his kids this week as well. We were sharing our trades with each other and they did awesome. I know people who have quit good jobs as a firefighter/EMT, truck driver, electrician, and there’s a few more examples, to become full-time cattlemen. Think about that; these are good paying secure jobs with benefits that conventional wisdom says we need.

Whatever we think in our minds is our reality. I have heard some fifth- and sixth-generation ranchers say that ranching may not be in their future if these markets don’t get “fixed.” They passionately refuse to learn proper marketing skills and business mechanics.

Let’s make another comparison. Someone gets into the cattle biz from scratch, literally starting on the ground floor, and makes the leap to being a full-time cattleman. The other inherits a legacy, and is now afraid they will have to sell off that legacy. This is a natural business cycle, some businesses start and make a go of it, while other businesses in the exact same field in the exact same neighborhood go broke.

The razor’s edge difference between making it or not is between the CEO’s ears. We will invest in land, cattle, machinery and feed. These are big checks with marginal returns. When it comes to investing in ourselves we pull the park brake as hard as we can saying, “hell no.” Yet the latter only requires a small check, with an infinite return.

I got to see some bred females and pairs sell this week. They were sold during the regular weekly auction and not on a monthly special, I mention that because special sales tend to fetch better prices. When I bell-curve the prices, there was little appreciation value this week. A bred heifer only brought $350 more than on open replacement heifer, which caught a $4 premium this week. A first-calf heifer pair only brought $70 more than a bred heifer. In fact, if you sold the heifer at heiferette price with her baby calf separate you’d get the same dollars. The biggest leap in value was from a 4- to 8-year-old bred cow to a 4- to 8-year-old pair. They jumped $360 in value. After that, depreciation eats away at the value of the cow to the tune of losing $180 per year of age. The bell curve has a slight grade of price run-up, with a steep grade of depreciation.

Feeder auctions were mixed this week. Some weights of cattle were higher while other weights were lower. Thursday auctions seemed to get a boost in prices paid, but one thing remained constant through the week: Once again the evidence says this is not a weight-gain business. The value of gain (VOG) went down for every 100-pound increment. Operations that have really pinned down their costs and can put gain on very cheaply can work with these low values of gain. I doubt many operations can, though. The highest VOG were on cattle under 600 pounds.

Once again this week every auction I attended or market report I looked at had a weight class of cattle that brought less dollars per head than the weight class below it. The math shows the market was paying people to take the weight home. While this leap frog may be a good trade mathematically, I feel it’s up to each individual to evaluate their risk tolerance. What I mean by that is with some packing plants closing this week, we are uncertain at this point how it will affect our ability to market them as fats.

This week unweaned cattle were $3-8 back and feeder bulls were $10 back. Southern cattle were overvalued compared to plains markets, when adjusted for freight cost to Nebraska.

My final thought this week is on feed. I have seen some cheap hay sell the last few weeks, and when I checked the cash bid for corn here it was in the $2.80 range. Compared to what we have seen this is a bargain. While this will certainly cheapen up cost of gain (COG) the trick is to be sure not to bid those savings away on cattle. If you buy corn at $3.00 and it goes up to $4.00, charge yourself the $4.00. Make some money on the corn and make money on the cattle too.