Bud Williams used to begin his marketing schools by talking about knowing yourself. Know what you will do and what you won’t do. If you will not sell a steer before he weighs 800 pounds or sell a perfectly good 5 year old cow, then stick with what you “will” do.
|Buy / Sell
||Sell / Buy
|Buy an animal;
then sell and pay expenses;
see if there is profit or loss
|Sell an animal and pay expenses;
then buy another animal.
Profit is the difference between the Net Sale and replacement cost.
|Buy / Sell
||Sell / Buy
|Buy 515# Steer @ $196.50 = $1011
Sell 750# Steer @ $135.00 = $1012
Net Loss $194
|Sell 750# Steer @ $135.00 = $1012
Buy 525# Bull @ $125.00 = $656
Gross Margin = $356
Positive Cash Flow $161
|If we stop right here, we have lost $194. Look to the right, if we then buy the 525# bull calf, we can still make money.
What is the difference? Only difference is structure of the business.
Buy / Sell is a philosophy that is at the whim of the market. But you never know if there will be profit.
Sell / Buy is a philosophy that shows when there is a profit to be taken today. But there is only a profit if you act today.
It is important to know what the market is willing to pay for.
Skill of Grazier
- Steer vs. bull
- Guaranteed open heifers
- Guaranteed Bred heifers
- Packaging (Singles into Groups)
- How, When, Where you sell
Do you have an unfair advantage?
- Skills (see above)
- Low Cost of Gain – Summer? Winter?
- Proximity to source of cattle (available abundant opportunities)
- Turnover Time (How many times a year can you turn your money over?)
If the market never moves, the value of your cow herd inventory still changes.
- Cow Depreciation
- Heifer Appreciation
Follow the life of a heifer calf through the cow herd:
400# heifer calf @ $1.70 = $680
800# Yearling Heifer @ $1.40 = $1120
20 month old Bred Heifer = $1500
2 Yr Old w/calf = $2000
3,4,5 Yr old w calf = $2000
6 -7 Yr old w/calf = $1500
8-9 Yr Old w/calf = $1200
10+ Yr Old w/calf = $1000
As the age of the individual cows change, the inventory value changes.
Cost of Carrying animals made simple: An animal eats its weight every month.
- 1000# cow eats 1000# of grass / month.
- 400# calf eats 400# of grass / month.
Ranch Example: A
This ranch has 50 calving age females, sells 5 cull cows/year, keeps 5 replacement heifers/year.
Heifer calves 400# @ $170 = $680 X 5 = $3,400
Yearling Heifers 800# @ $140 = $1120 X 5 = $5,600
2 Yr old = $2000 X 5 = $10,000
3, 4, Yr old = $2000 X10 = $20,000
5 Yr old = $2000 X 5 = $10,000
6, 7, Yr old = $1500 X 10 = $15,000
8, 9, Yr old = $1200 X 10 = $12,000
10+ Yr old = $1000 X 10 = $10,000
Total 60 Head = $86,000 Value of Inventory
Sales each year are 45 calves = 5 cull cows
If we continue this program, inventory value is static. There is no management of Inventory Value.
Ranch Example B:
What If we sell every animal that is at the point of depreciation or beyond and replace with heifer calves to grow into cows. In the future sell all cows at depreciation point (5 Year/Old)
Sell all 5-10= Year Old Cows 35 head = $47,000
Buy 70 400# Heifer Calves @ $680 = $47,600
Two years later the Inventory is:
2 Yr Old heifers, 75 Head (5 raised, 70 purchased) @ $2000 = $150,000
3-4 Yr Old cows, 10 Head @ $2000 = $20,000
Value of Inventory $170,000
Plus if we keep all heifer calves to breed those 2 years:
8 Heifer Calves @ $680 = $5,440
8 Yearling Heifers @ $1120 = $8,960
Total calves and heifers $14,400
Total ranch inventory = $184,400 ($170,000 + $14,400) plus have sold an additional 10, 5 YR old cows = $20,000
Change in Inventory Value is $184,400 – $86,000 = $98,400
Sales are: What do you want them to be?
Sell all calves? Keep all heifers, sell all high value animals?
What you do with this information is up to you. The point is to be aware there is a lot of money to be made by actively managing Inventory Value.
- Cash It In?
- Let It Ride?
- You get to decide!
Decrease Expenses or Increase Production?
Net Income 20,000
|Increase Production 10%
||Decrease Expenses 10%
An Ounce of Grass
What is one ounce of grass worth?
- 43,560 sq ft/acre @ 9 sq ft/yard = 4840 sq yards/acre
- 4840 yards X 1 oz = 4840 oz
- 4840 ounces/acre @ 16 oz/lb= 302.5 lbs grass/acre
- 302.5# grass/acre X 50% utilization rate = 151 lbs grass/acre
- 151# grass/acre @ 12# grass require/lb of gain =12.6# gain/acre
- 12.6# gain/acre @ $.50/lb/gain = $6.30/acre
Economic Impact of 1 ounce of grass/ sq yard
- Oklahoma has 20,783,165 Grazing landAcres = $130,933,940
- Kansas has 17,905470 Grazing landAcres = $112,804,460