Good evening. Sorry for the unplanned hiatus. But, I'm caught-up (sort-of) and back on track! When we last left off, we were discussing INVENTORY VALUE. A wonderful student of mine had sent in a paragraph describing the fallacy of myopically focusing on inventory value fluctuations. Today happens to be a GREAT day to be discussing this concept, because the cattle futures markets were down hard today. In fact, feeder cattle were limit-down across the board! To the unskilled marketer, this would seem to be a disaster, but it is no such thing.
From the stocker man's perspective, nothing really happened today. Yes, the market was lower, but the downward price movement will, on the whole, spread itself evenly over the entire feeder cattle spectrum. 8-weights will trade lower, 6- weights will trade lower, 4-weight will trade lower, etc. If anything, one could lucidly argue that volatile down markets expose and reveal more available profit to the experienced marketer as the majority of unskilled market players revert to a hyper-emotional, panic-driven mode.
From the feedlot's perspective, profitability IMPROVED today. Let's look at the simple math comparing yesterday to today:
YESTERDAY:
August Fat Cattle at $81.65 (this would be the SELL in the equation)
August Feeders at $100.17 (this would be the BUY in the equation)
If we flow the math through using a fat weight of 1350# and a feeder weight of 750#, we see that the return on the gain here is $0.59 per pound. Needless to say, this is awful given that feedlots are running a true, all-inclusive gain cost in excess of $0.80 right now. But, what we need to focus on is comparing yesterday to today:
TODAY:
August Fat Cattle at $80.65
August Feeders at $97.17
The return on the gain here is $0.60 per pound. Still awful, but BETTER THAN YESTERDAY. In fact, given the 600# weight difference between the fat and the feeder, that $0.01 increase in the return on the gain translates to a $6 per head improvement.
In order for this industry to survive, we MUST get our heads around the reality that we are MARGIN operators. We have completely lost sight of that, and thus we persistently buy enormous losses, and then wonder why we aren't profitable, why life seems so hard, and why God apparently doesn't love us. Don't get me started.
Now, you guys have come to expect me to say something REALLY mouthy in every post, so here we go. One of the huge problems with this industry is leverage. Cattlemen leverage themselves out the gills, which then traps them in that "myopic" mindset of needing the market to inflate in order to outpace the burden of the stratospheric leverage that they have taken on. The troll under the bridge, so to speak, is the banker. The banker has overextended HIMSELF and has lent money to cattlemen with grossly insufficient equity behind that loan. The banker, like the cattleman, is completely incompetent when it comes to marketing. So, we have the double-threat working. We have a banker who has put himself in a precarious position by lending too much money relative to the number of cattle, and he is equally, if not more incompetent than his debtor. The banker is not focused on his customer's cash flow. All he cares about is market inflation, so that he can "get his money back". So, the market goes down, as it did today, and now panicky bankers are calling panicky customers, and despairing how "horrible" everything is, and how "nobody can make any money". Cattlemen are then paralyzed due to either their own fear reinforced by the allegedly "smart" banker, AND/OR frozen by the banker's withdrawl of credit at EXACTLY the time that it is most critical for the cattleman to be BUYING, namely when the market is low. Selling into a low market and NOT replacing is suicide in every conceivable sense.
How do we fix this? First, ALL OF US need to get our acts together and learn true marketing skill. Second, the cattlemen need to cut the cord with the banker. Sorry bankers, but you know I'm right. Debt is a tool that can be used conservatively, particularly by young operations that are just getting established. Debt is not and should not be a WAY OF LIFE. Any man who is in debt should have at the forefront of his mind the driving need to GET OUT OF DEBT as quickly as possible. When one is consistently profitable, you would be surprised how quickly you could be operating on your own cash, 100% debt-free. The problem these days is that no one even bothers to try to get out of debt. We live in a hell of our own creation and choosing. All I'm saying is, consider the alternative. Please.
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
