I left off last week with the promise of comparing a legit sell/buy scenario to the now busted no depreciation cow herd theory. Before I get into that I have some extra holiday cheer and hope to share.

A promising 2025

 I received two messages last week that left me feeling awesome. These messages were from people who’ve attended one of my schools. The first one said she was planning on quitting her job in 2025 and legit sell/buy was going to help her achieve this. The second was a stocker trade that made over $460 per head profit! I have never seen, or heard, of one this amazing before!

For the sell/buy scenario, remember last week’s examples were not sell/buy, I used the same parameters of 16 percent fallout and 30 percent opens on the replacement heifers, and the sale results from Salina, Kansas October female sale. Now let’s be honest here, I have the sale results and hindsight being 20/20 and all that. It would be easy for me to just pull out the best sell/buy trades and do them repeatedly for the ten-year window and blow the doors off last week’s examples.

Trading animals

In the real world we don’t always have the most overvalued animal in our inventory, and we don’t always replace it with the most undervalued animal. So, I hand cuffed myself even more for this example.  Once I did a trade between two animals, I did not allow myself to come back and do that trade again. The only exception was buying replacement heifers each year since one of the cozener’s points is capturing appreciation value.  I held heifers to a maximum of 40 percent of the stocking rate to force myself to market cows, and I never let it drop below 20 percent.

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Calving once a year

Another layer I added since some cow/calf producers that have been to my schools do not like the idea of switching calving seasons and having to calve twice a year, I only calved once per year in this example. (side note: the pushback on calving twice a year is what led to the knee jerk reaction I had in class where my now popular one liner came from “If you’re going to run from the work, you might as well hide from the money”). So, when I bought short-bred cows I had to resell them before they calved and buy back something else that fit the desired calving window.

The cattle square

The most important thing is every trade had to be a legit sell/buy trade. This means that costs were attached to the animal sold and all four values were plugged into a cattle square to be sure each one was a profitable trade. There was a lot of math, remember the math way is the pathway.

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Here’s why that last paragraph is so important. People have been texting me prices of a trade they have done because they think they got this all figured out from listening to podcasts. Not one of these has pulled off a legit sell/buy trade, the math doesn’t check out.

Sell/buy perspective

Last week the only scenario that remotely worked is a total failure if we look at it from a sell/buy perspective because it sold more value into the market than it was getting paid for that value on some of those trades. Sell/buy is not just selling an animal and replacing it with a cheaper one. That leaves out the math. It also examines value, which requires math. The no depreciation cow herd theory deflects responsibility onto the calendar removing the math, whereas legit sell/buy forces the operator to take responsibility of examining relationships.

Inventory

At the end of the ten-year scenario, with all the added restrictions in place, the string of trades made $398,840 net pretax profit. That is 32 percent higher than the control group and 25 percent higher than the best-case scenario of the no depreciation theory I covered last week.  Ending inventory valuation was $263,600 or 7 percent higher than the control group and 3 percent higher than the best case no depreciation scenario. We can’t control what the market does to our inventory valuation, we can control what we have in inventory.

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Stick to the basics

This sell/buy scenario accomplished this with all those restrictions in place by sticking to the basics of sell/buy marketing. I made sure the gestation periods matched up. The real world has a way of messing up plans. I bought a group of fall calving cows that were due in Sept. and Oct. 25 percent of them calved in Nov and Dec.  These things happen and we must play the hand we are dealt like it is the hand we wanted from the word go.

Here’s the big thing when it comes to a handful of trades I did for this scenario. I sold old cows and bought back younger ones at a profit. At a profit! This is why I say we’ve given too much attention to cow depreciation. I am not at all interested in deflecting anything; I am focused on generating profits. We’ve all heard that what we pay attention to is what grows. If we are giving our attention to deflecting depreciation, we end up hurting our profits. If we focus our attention on earning a profit, we greatly increase our odds of capturing those profits. And look at what focusing on profits by utilizing sell/buy did. It outperformed the half-baked idea of deflecting depreciation, even with all the restrictions I put in place. Legit sell/buy is a culture of excellence and unrivaled performance.

Capital gains tax

I was curious and removed the restrictions and net income soared 20 percent higher.  Here’s why I bring that up. The cozeners are big on owning cows for a while, so they pay capital gains tax, which is a lower percentage than income tax. If the operator executes good trades and does it aggressively, both are key and will require some work, that operator can pay the higher income tax and still have more money left over after satisfying the tax bill than they would by playing the capital gains game. Again, focusing on what you want.

Profitable trades

Years ago, when Ann Barnhardt was teaching the schools she was put up to a similar task as I was. She was challenged to do it with stocker trades and the requirement there was the animal had to be sold every so many days and she had to use a set rate of gain for that time period. She was able to show profitable trades every time the animal was to be sold and replaced. I haven’t written this line on here for a while so here it is; the market has a way of coming around and helping us out. The thing about it is we must be able to interpret what the market is telling us. See, the market is not screwed up in any way, it is our ability to interpret it that is lacking. This systemic thinking problem can be fixed.

Don’t over complicate it!

It is time to give legit sell/buy marketing the respect it deserves. Quit over complicating it, manipulating it, or throwing in bogus theories disguised as sell/buy. Just stick to mastering the basics.

The market

This week a female sale I was at gave me a Christmas present, which is another way to disprove the no depreciation nonsense. Price discovery established a price for 3- and 4-year-old cows. Five-year-old cows sold $150 below that price and the price the five-year-olds brought is what all cows over age five brought until they were called short solid. When the buyers that were making the market for the 3- and 4-year-old cows were squared up, the market for them dropped $500.

Not many of us will pay more for the mature cows than what the younger ones are bringing, so their price dropped $500. As readers can see laissez faire free market capitalism proved when it comes to depreciation the sellers of the younger females didn’t deflect anything.

Looking to 2025

My March school in North Dakota is filling up, so get those registrations in soon.  We still have plenty of room for the February school in Nebraska.  Marketing Schools – Mr Cattlemaster