Good evening! First things first. I just conducted the big Quizbowl prize drawing (under the supervision of the accounting firm of Price Waterhouse) and the winner was Keith Larson of Scandia, Kansas! Congrats, Keith! If you recall, the Quizbowl question from June 30th was the following:
Fat cattle settled LOWER today, and feeders settled HIGHER. But, feedlot profitability was markedly improved by several dollars per head in all forward delivery windows today. How is this possible?
Keith, and MANY others, knew that despite the seemingly impossible movement in the feeder-fat spread, profitability still IMPROVED because . . . corn was down sufficient to cover the movement in the feeder-fat spread . . . and then some! In fact, corn was limit-down on June 30th.
This bring such an important point to the fore - feed cost, and by proxy, cost of gain. The two concepts are darn-near siamese twins - they are so intertwined! There is a DEPLORABLE lack of understanding of feed inventory dynamics and ESPECIALLY cost dynamics in this industry. Granted, feedlots are calculating gain costs, but alomost EVERY feedlot on the continent is leaving out at least TWO utterly critical and non-trivial components: interest and profit. Even if they did get their acts together and add in these two components, they still lack the marketing skill to understand the underlying dynamics and signals that the market is sending them THROUGH their cost of gain. That's why they are losing hundreds of dollars per head, and are having to go mortgage land assets to stay afloat. When the government takes over all banking and "renegotiates" the interest rates on those notes after inflation kicks in . . . oh my. But I digress.
Just one example: Inversion. If a cattleman, no matter what his sector, is selling cattle for a price per pound that is LESS than his gain cost per pound, this has the inescapable mathematical consequence of inverting the replacement market under him. Here's an example:
Sell 1300# steers @ $80
Cost of gain on those fats (including interest and profit - anything less is nonsensical) was $0.82
Maximum buyback price of an 800# steer = $78.75
700# steer = $78.29
600# steer = $77.67
500# steer = $76.80
Do you see that? Do you see how the max purchase price per hundred actually DECREASES with the weight of the replacement animal?? This makes life VERY difficult if you own a feedyard, doesn't it? Why in the world would you ever put yourself in this position? The only answer is rank ignorance. But, that's actually cool, because ignorance can be fixed. It's stupid that is so hard to cure . . .
The answer to all of this is, DON'T LET YOUR ANIMAL GAIN WEIGHT SUCH THAT THEIR MARKET PRICE FALLS BELOW THEIR COST OF GAIN.
That one sentence would have justified the entire cost of my college education. Trouble is, no one at the ol' alma mater has any CLUE about the concept above, and so nothing even remotely close to that was ever discussed or presented. Ah, but I'm harping. You know I ALWAYS endeavor to be super-sweet and loved by everyone. I just want to be EVERYONE'S friend. Har har. See you tomorrow.
Forecasters are killing the North American Cattle Industry.
"Global warming" is a complete fraud designed to advance the cause of socialism and enslave humanity.
Abortion is the murder of an innocent human being and is never justified under any circumstance whatsoever.
Every human being is a question, to which the ONLY answer is Jesus Christ.
Ann Barnhardt
Barnhardt Capital Management, Inc.
www.Barnhardt.biz
888-799-4577
Ann@Barnhardt.biz
Bud Williams Marketing, Inc.
www.BudWilliamsMarketing.com
877-799-4577
Ann@BudWilliamsMarketing.com
