Learning a few marketing lessons

Calculate your expenses, checking invoices before paying, and calculate the true cost of shrink for your cattle business

Doug Ferguson

October 29, 2021

5 Min Read

Last week I was focused on dissecting the mainstream paradigm and neglected to mention I was on the Herd Quitter Podcast again last week. I really enjoyed this interview with Jared. The feedback I have received so far has all been positive and upbeat. Give it a listen.

If you scroll down through past episodes you will find a couple interviews with Wally Olson on sell/buy marketing as well that are very informational.

While on the topic of educational resources let me remind you all that I have a marketing school coming up in early December. Wally Olson has some coming up as well.

Many people have asked me if I will offer my school virtual. At this time I will not. For those who prefer the at home experience there is only one high quality option. Ann Barnhardt produced a great DVD set on sell/buy marketing.

Two weeks ago I was on the topic of calculating your costs. I planned to continue more on that topic last week until the mainstream offered up a softball I just had to crush.

Consider costs more closely

I think this first one should be a real no brainer, but amazingly it needs to be brought up. To execute profitable trades we must accurately calculate our expenses. Sometimes this means making sure we are billed correctly from our suppliers.

I hope everyone else’s experience is better than mine. Thing is lately I have been getting over charged for things every time I turn around. These are usually just rounding errors. An example would be a load that was rounded up to the nearest thousand pounds. Depending on what was delivered, rounding up 50 to 200 pounds can add $10 to a bill. Do that once to twice a week for a month and it adds up.

This can throw Cost of Gain calculations off. It’s difficult to bill out pounds of feed that were paid for, yet not delivered, when we charge ourselves by what goes in the bunk for each pen. There is a phantom loss taking place and that is hard to pinpoint. So we must pay close attention to our bills.

Here is an embarrassing lesson I learned earlier this year. Never pay a bill until you agree with it. I ran out of time to double check a bill but went ahead and paid it. I did that because if I pay it in full by a cutoff date I get a discount. Later I went back through it and found some errors. I mentioned this to my supplier, expecting a credit on my account, but it fell on deaf ears. Wally mentions the Golden Rule: He who holds the gold makes the rules. If you refuse to pay a bill until you are billed correctly, it will get corrected and quickly

We must also watch the scale at cattle auctions. More times than I can count this year I have noticed some auctions haven’t done a good job balancing the scale. I have also seen groups of cattle get weighed, then buyers sort some off the group. When the group and the weigh offs are both reweighed, they are both heavier than the original average. Not a single buyer at the auction said anything about it. Someone paid for weight they didn’t get. If you go to the sales yourself it’s your job to catch these things. If you hire an order buyer it’s their job to catch that.

Don't underestimate the cost of shrink

This next one is something the experts have told me to ignore and forget about, and that is shrink. A few years ago I was selling cattle through two different sale barns while tracking and comparing the shrink at each.

The one barn is more than twice as far away as the other, so I would ship cattle the day before the sale to give them time to eat some hay and get a drink. I was hoping this fill would offset the shrink. Shrink on those loads ran 3 to 9%. The other stockyard that is closer to home had shrinks of 1 to 3%, and those cattle were shipped shortly before the sale began.

The barn that was farther away naturally had a higher freight bill, feed costs, and a few other expenses. When I compared the two the barn that is farther away has to sell my cattle for $4 a hundred more than the other barn just to recover the extra expense (this includes the shrink)

Put all the other expenses aside and just focus on the shrink. If there is an average of 4% difference on a load at $1.50 that is $3,300 per load. Shrink is going to happen, and for you doubters it's why you have to clean out the inside of your cattle trailer. We should give it some consideration so we can deflect it as much as we can.

I have been repeatedly hard on experts while writing this column. Staying true to the theme of this week’s post of watching our money I want to point out one thing. We don’t always get the education we think we are paying for.

A look at the market

This week the Value of Gain changed quite a bit. The high VOG flyweight cattle had been giving us eroded away this week. While it is still higher than COG the wide margin shrunk a lot. Now the heavy feeders saw a big boost in VOG this week. Some of these heavy feeders saw a VOG of $1.75 to $2.20! You want to talk about getting on the money frequency, right there it is. This is in the plains markets.

In the south it was a little different. Flyweights had the best VOG still, and it dropped steadily until the cattle weigh 700, where it bounces back up again.

This week feeder bulls were 15-45 back, and unweaned cattle were 4-15 back. These are bigger discounts than we’ve been seeing. I will contribute it to two things. One was the much needed widespread rain this week. And the other is that it has been more difficult than usual for grow yards to start bawling calves. If grow yards continue to struggle with bawlers we can fully expect this kind of discount to stick around.

Replacement quality heifers caught a $4 to $15 premium.

There were some swings this week, big discounts, and big premiums. Buyers are effectively communicating what they want and what they don’t want.

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