Good evening!  Today we'll look a little more at the fallacy of an upward-moving market being "good" and a downward moving market being "bad".  A few of you readers who have been through a Bud Williams Marketing School with me, and particularly those who subscribe to www.BudWilliamsMarketing.com , already know that feedlot profitability has been on the slide for a while now and has gotten REALLY ugly lately.  Most folks in the mainstream correlate feedlot profitability to the price of live cattle.  If fat cattle price are uptrending, feedlot profits MUST be improving too, or so goes the line of thought.  And, if fat cattle prices are downtrending, feedlot profits must be eroding at the same time.  This is a horrendous error.  Feedlot profitability is a function of THREE variables:  the price of fat cattle (the SELL), the price of feeder cattle (the BUY), and the price of corn, (the cost of gain).  Getting only one out of three might be fine for a baseball player, but not for us.  Discussing profitability without including the sell, the buy and the cost structure is babbling idiocy, and nothing less. 

Right now, the price of fat cattle is $85.  In Nebraskaland, 750# steers are going for over $100 in many places.  All-inclusive gain costs are running in the mid $0.80s for most yards.  Please note that I said ALL INCLUSIVE.  That means everything is in the cost structure, including interest and profit.  Any business that does not include interest and profit in its cost is deluding itself.  Only the cattle business is backwards enough to revolve around a pre-interest breakeven.  Goodness.  Don't get me started on that . . .

I digress.  Back on topic, selling fats at $85, buying back 750# feeders at $100 with and $0.85 cost of gain means that feedlots are routinely losing $114 per head today.  This loss has gotten progressively worse over the last couple of months, even though the fat market has been largely sideways.  What MUST be the difference maker or makers?  Well, what are our remining two variables?  Feeders and corn.  Both have been uptrending, thus eating into feedlot profitability. 

Heck, the fat market could have been rallying, but if the price of feeders and/or corn rallied faster than the fats, then feedlot profits would still erode, even in an "up" market.  Savvy?  The truth is, a competent cattle marketer really doesn't care if the market is going up or down.  He can make money in ANY market environment, because he understands that it is all about the MARGIN, or relative price relationship between the sell, the buy, and the cost.

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