How they work:
Buy-Sell: A plan is developed to own an animal with many assumptions and estimates .What it will cost, how much it will gain and what it will bring. With this hope and that is all there is, we come up with a break even value.There will be a set time frame that we will own the animal. Where I ranch this is buy one in late fall, winter it and sell in late July.
Sell-Buy: Sell some money and buy the most undervalued animal. Carry this animal along to a point that we find a trade that is profitable. We know what our cost to carry is.We can weigh the animal and know what our inventory is and we can get very close to the price. With that knowledge, sell the overvalued one buy the undervalued one. With this transaction you have created cash flow, pick up profit and most of the time bought a smaller animal back. The smaller animal eats less feed and there are fewer pounds at risk if the market goes down.
This last April I had some 500# steers that I thought were worth $2 a pound and were worth $1000. I really wanted to sell $1000 calves. The bid back was $196.50; I can live with $982 steers. The buyer said he thought a base weight of 515# vs. 500# was better, and that was fine with me.
They totaled $1014. In July I was at Joplin Stockyards for a video sale and the steers sold. They were to weight 750# and brought $135 or $1012. The gross margin is negative $2 dollars.