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December 1, 2023
Be careful what you wish for is something I have been thinking about the past week. As the 11th month of the year just concluded we have seen an interesting cycle in the market. The start of the year began with hope and the new wave of prosperity to come. As prices increased we saw greed step in. People who haven’t owned cattle in years decided to buy some. Now we are seeing fear as prices pull back.
Anyone who has been around the business for a minute should know that a healthy market trades up and down, while trending in an upward direction. We have all heard things like “high prices, cure high prices,” or the fabulous Gordon Hazard quote “You can’t throw a stone so high that it won’t come down.” So we all know this is going to happen. When people express emotions of shock, anger, fear, or panic I guess the timing wasn’t convenient for them. One thing I heard this week that really got me was “We need to get to the bottom so we can begin to rebuild.” Be careful what you wish for. I remember buying six weight feeder bulls in the fall of 2015 for 98 cents, when six months earlier five weight steers were bringing $3. Even the rookies remember that ride and don’t wish to repeat it.
For people who think the good times are correlated to price it’s not fun right now. The profit trackers are telling us that feed yard close outs are riddled with red ink. The fantastic thing is Sell/Buy is a real time cash flow reckoning. While the cozeners were posting to the chat boards and discussion groups about the high prices of feeder cattle telling us the good times are here, the legit sell/buy practitioners realized that those feeder cattle were bought at a loss. They were over-valued to fats. Now the profit trackers are finally catching up.
Some of those cattle that were purchased this summer have a break even close to $2.10. For those who may not know fats are around $1.75. We all have heard the definition of insanity is trying to do the same thing over and hoping to get different results. If you still run break evens you know this is going to come around.
If we don’t run a break even what are we supposed to do? The answer is learn to calculate a Return on the Gain (ROG).
While driving to a local cattle auction I listened to a Charlie Munger interview. In there he said that ignorance is the most expensive price we pay. He warned not to miss an opportunity because we are not wise enough to see it.
A short time later I was sitting at the auction and I could clearly see the opportunity. Even if the feed yard sold fats at $1.75 they could have replaced them with certain groups of feeders that had a ROG of over $1.80! Imagine that, positively cash flowing in this week’s market.
Munger was asked about the use of algorithms in that interview, and he replied he never used them. He only used the simplest form of algebra. That’s what sell/buy marketing is when we correctly implement a cattle square to find the Efficient Market Value of cattle, which is the maximum amount we can pay and still hit our profit target. For those of you not familiar with legit sell/buy marketing what I just explained is our control is on the buy, and we capture our profit on the buy. This is why break evens are useless, and we already established their track record.
That was another thing Munger mentioned is to find somebody, in this case something, with a solid paper record. Break evens fail when the market goes down, but ROG are always solid.
It hit me yesterday and I am not sure why no one ever mentioned this before. Sell/buy marketing has never experienced a bubble. In fact, it doesn’t even recognize bubbles like other forms of marketing do. Because it doesn’t recognize bubbles and relies only on simple math it enables us to positively cash flow through market ups and downs.
Some market commentaries have stated that the markets were down 10-17 dollars this week. I wonder why they looked over the ones that were only down 3, or steady, or 10 higher? Either way this kind of market turbulence really causes the relationships between weights shake up, and that is what creates prosperous opportunities for those who have the market literacy to spot them. Remember what Munger said the most expensive price to pay is.
If you would like to avoid paying the most expensive price I have two sell/buy marketing schools coming up in February and April. Marketing Schools – Mr Cattlemaster Or you can purchase on of Ann Barnhardt’s cattle marketing DVD sets Ann Barnhardt’s Cattle Marketing DVD Set | Barnhardt Either one of these would make a great Christmas present, and after that person learns how to positively cash flow no matter what the market does next year they will be able to afford a really nice present for you.
I covered the turbulence in the markets this week. This certainly had an impact on Value of Gain (VOG). A sale could have a VOG of over $3 on one weight class and 24 cents on another one. The part that tests people’s patience is when you go to another sale the very next day and VOG is not consistent. I mentioned exercising our control, and sometimes that means going home with an empty trailer.
Another thing to be aware of is the lack of cattle numbers. It is starting to have an impact. Some sale barns have cancelled sales for the month of December. I spoke to some Canadians this week and they told me they have had sale cancellations up there as well. The first 11 months have been interesting and unique and it appears we will finish the last month of the year that way.
Feeder bulls were up to 60 back this week, and fleshy cattle took a discount up to 15 back. That kind of discount on a heavy weight feeder devalued the feed it ate. While some of the prices for cattle are coming down the price of feed is not.
The opinions of Doug Ferguson are not necessarily those of beefmagazine.com or Farm Progress.
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