September 8, 2023
My daughter finally crossed the bridge in her academic career where she questions why she must learn silly things. She questions the need to know about rivers located in Europe in the year 400. I have always told her she needs to know how to do math since it is involved in handling money. I’ve told her she needs to know how to read, that way she can educate herself. And I’ve told her knowing a little bit of science will certainly help in life.
I agreed with her that knowing about those rivers in the year 400 seems pointless. I urged her to focus on the reading comprehension from the assignment. One of the answers to a question she was struggling to answer was in the first sentence of a paragraph she was assigned to read. That comes back to the “paying attention to what it is you are looking at” that I am constantly preaching about.
I also explained to her that it is about learning to do research. We live in a world today where people are so used to being lied to that they just accept it, as long as the lie makes them feel good or fits the narrative they support.
I gave my daughter two examples. First, I told her of a mistake a person I know made because he didn’t do any research. After learning of the mistake, he just took the fine line between right and wrong and used it for a jump rope. This is what people do. After they are exposed, they can never be unexposed so they just double down on the mistake. C.S. Lewis wrote, “We all want progress, but if you're on the wrong road, progress means doing an about-turn and walking back to the right road; in that case, the man who turns back soonest is the most progressive.”
The other example I gave her was how doing some research and coming up with questions that I thought I needed answers to may have prevented me from making a costly mistake. By doing this, it led me to more information and more questions. I pointed out to her that it wasn’t what I knew that was going to make me successful. It was what I didn’t know, or think of at the beginning, that was going to hurt me.
The math lessons
Finally, we got to something more my speed. She was stumped on a couple math questions. They are working on orders of operation. A couple of those problems were tricky, but we got them figured out. Again, paying attention to what we were looking at, along with some critical thinking and problem-solving skills we arrived at the correct answer.
All of us that discuss the topic of marketing and structuring a business say that we must include profit as an expense to the business, or to pay ourselves first. It is the first order of operation, and we all include it right at the beginning of our material.
I have noticed that somewhere between the beginning of the material and later on in the material this step doesn’t get followed by the others. When they get to the point of adding up all the costs to the business the line that should be labeled profit doesn’t exist. When they tally up all the costs the sum would have to be incorrect if profit is to be included, but instead got left out.
Cost is the fulcrum that will determine what is over or undervalued. This makes it the root of every equation that follows. It doesn’t matter if you are attempting to do some weird twist on sell/buy marketing or just running a break even for a pen of cattle. If the point is to make a profit, and profit is not figured in, then the solution to any equation will be incorrect.
Reasonable vs. unreasonable profit
Profit must be included on every trade. Right now, with the market going up, skipping this first order of operation isn’t showing itself because the market goes up enough to cover up the mistake. When the market does come back down, skipping this first order of operation will dry up cash flow quickly.
Some people have been taught to market cattle for capital gains. This has left them feeling like owning cattle is not worth the risk since the reward isn’t that great at the end of the year. I have helped some of these people by adding a profit target to each turn, and a year later they feel much differently about owning cattle.
It is very simple, folks. If we aim at nothing, we have an outstanding chance of hitting nothing. If we charge a profit to each turn of cattle, we greatly improve our odds of accomplishing what it is we want to accomplish.
To wrap this up, I want to be clear that the size of the profit must be reasonable. A profit of $5 per head is not reasonable because it is just not enough to support anyone. And a $500 per head profit is not reasonable because it is too much and will disqualify any opportunity that exists. This is what I love about sell/buy marketing when it is done in a certain way; it is consistent.
The markets were interesting this week. While prices are higher for cattle north of I70 the Value of Gain (VOG) was higher south of I70. South of I70 it is for sure a weight gain business, but north of there the VOG got suppressed enough on some heavier feeders that it fell below the Cost of Gain. There are enough discounted cattle moving right now that this trade can still be salvaged, but it is going to require market literacy and discipline to do so.
When cattle prices get high enough the temptation is there to creep feed to get additional pounds. Fleshy cattle were solidly discounted thirteen dollars. Feeder bulls were up to 50 back if weighing over 500 pounds, and the discount could be even bigger if they were not weaned.
Weaned cattle vs. unweaned
Another thing that should be discussed this time of year is weaning. This week it was not hard to notice that unweaned calves were bringing more than weaned cattle of the same weight and type. For those of you who don’t know what this means, I’ll explain. The weaned cattle are falling apart after arriving at grow yards, so the grow yards are letting us know that they will wean them and do it right. This is what makes fresh cattle worth more; no one has screwed them up.
Pair buyers didn’t bother to show up at auctions this week. This created a big shift in the female markets. A fall calving cow was worth more than a pair. What a deal! The calf is on the ground and doing well, saving us the risk of losing the calf. There is also a time value capture since we have an animal that we will be selling sooner. Not to mention the cash value difference.
But, what if you were the guy that sold the pair? She’s still not the most under-valued. First calf heifers due after January first were the low hanging fruit once again.
The opinions of Doug Ferguson are not necessarily those of Farm Progress or beefmagazine.com.
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