In the last 12 months the value of cattle has dropped by about 54%. Looking back, it took from 2010 to 2015 to rise that much. And if you compare the nearby to the far-out months in the feeder cattle contract it says we’re going down 10% more.
This drop in the market really only matters if you were quitting or if you had a bunch of money borrowed from the bank. What is important is positive cash flow. To achieve this positive cash flow you need to be selling premiums and buying or keeping the undervalued animals. With positive cash flow you can continue to operate the ranch and also start building back the equity lost.
In my case, since I was quitting, it is very important that I got out when I did. If you have money borrowed with 20% equity you’re probably in trouble. When you take away your 20% equity from the 54% drop in the market, in theory the bank is into their money by 34%. And let me tell you bankers don’t like getting into their money.
If you are that person in trouble with the bank, maybe I can describe who you are. You’re married in your mid-30s and have some children. You have had six or seven really good years in ranching. And you felt it was time to expand the cow herd, buy some land or build the new house.
So, what do you do?
Working through my problems in a similar situation back in the 1980s, I came up with the 10-year rule. If it really matters in 10 years I will put a lot of effort into it. There are only two main things that are this important, your health and your family. Not everyone made it through the ag crisis of the 80s, not all families stayed together. This round I pray we do better. The biggest thing you need to deal with is your guilt. This is something that I carry with me to this day. My wife worked hard for 10 years and when we moved on we didn’t have much to show for.
There’s a true statement out there: “It’s just business.” There comes a time that it’s over and you need to understand this. The sooner you face up to this, the sooner you can move on. Here’s the attitude I had to develop. You are in the cattle business and it’s not working out very well. The bank is in the loaning-money business and it’s not working out very well for them. You need to do all you can make the bank whole but you also need take care your family. This has happened before; there are laws on how this all needs to be worked out. You need to know your rights.
Moving forward, it’s your attitude that will carry you. This is a story about why I don’t have bad days anymore. I was in a meeting in Salina, Kansas, dealing with ag crisis. I was feeling pretty sorry for myself. And a gentleman got up and told the story. He had lost the family farm, he had lost his family, and he was going down by pond where they had picnicked to kill himself. He said, “The only reason that I’m here today is I’d failed at everything else in life and I was scared that I would even fail at this and I couldn’t live with that.”
From that very point I have not felt sorry for myself and I have not had a bad day since.
When I was growing up, I worked for a gentleman by name Orval Burtis, Sr. He told me before you learn how to make money in the cattle business you need to go broke, or nearly broke.
Moving forward, the most important thing you can have the cattle business is your name and your word. So don’t do something stupid so you lose these things.
I don’t know for sure how you’ll work this out. If you have the right attitude you will work it out. You need to be understood that you can be helped out, but we can’t bail you out. The structure of the business that you’re in is not quite right and it needs to be changed. There are many people out there that have been right in the same spot you are today that would gladly help you out. I know it’s tough to ask for help but humble yourself and do it.