Is the money ever really lost?

[Bigfoot]

I was discussing cattle with a gentleman this evening, and he had an interesting theory. He views feeder calves, like I view the stock market. If someone where to say, put $100,000 in an unmanaged index fund, and the market went down. The only way they would lose money is to get out then. He views the cattle market the same way. He buys calves, and keeps them 90 days. All different sizes, and tries to add frame and value. He wasn't concerned at all about the recent drop. Even though he currently owns several bought before the drop. He said as long as when he sells the calves, he turns around buys more calves, the loss will never really be realized by him. I never really thought about it. He potentially started the year with $100,000 worth of calves. He has $80,000 now. He plans on buying $80,000 as soon as their gone. Just a conversation starter here, but does anyone else view the market this way?

 

[SJB]

You can sort of look at it like contributing a fixed amount to a 401(k) and rebalancing on a regularly scheduled basis.

It smooths out the highs and lows and doesn't try to time the market.

 

[Sd1030]

Bf i for one do not have the experince to really discuss this because im still very new and trying to figure all this out. I find it interesting that you mentioned this because it does make sense in a way to view it like that. I actually was discussing some 401k stuff with an investor this week and he advised me that when your investments drop off that is actually a good thing, because if you still investing in your 401k your buying shares cheap and once market goes up you reap the benefits. So i can see the cattle thing falling in the same situation. On the other hand its hard for me to comprehend that if i paid a 1000 for a steer calf then ended up selling at a lower price that i did not lose money. I guess the point is as long as you ride the market your loses at one point will show back up when the market goes up.

 

[CSM]

While I was in college I had a professor that was an investor, CPA, and several other things. Remember the crash of Oct 88 I think it was, made for some lessons that have always stuck with me. The day after the crash professor Bailey walked into the class still laughing. He called the seller's idiots that guaranteed their own failer, and he was right. Sam Walton was asked by a reporter how it felt to loose a billion dollars in one day. He response "I didn't loose anything, I didn't sale anything".
CSM

 

[TennesseeTuxedo]

The instant you sell something of value either a gain or a loss has been realized be it paper stock or the four legged kind.

 

[herofan]

I will admit that I'm a little surprised by the panic just because they have dropped, but I'm not in the business big enough to assume my comment even mattered. I had actually thought about it in comparison to the stock market too. I've heard some older farmers say there was a time when prices dropped in fall and winter anyway, and it's only in the last few years that they remain sky-high all year.

I know nothing, but I assumed the high prices were bonus prices anyway; I never viewed them as normal and built anything around them as if they were.

I only sell once a year anyway around June or July, so there's no reason for me to panic unless predictions are that they will keep falling and won't be worth spit by then. Is that what is being predicted?

Another thing that is interesting; my brother and I got back in the business in late 2011. In August 2012, around here, a 500-600lb steer was around $1.35, and around $1.55 by August 2013, and we thought that was good then. Everyone was talking about how high they were. A neighbor sold us a heifer around 500lbs in November 2012 for $700 total, and he acted like he had a gold mine. So, I think I can probably stand it unless they get dirt-cheap.

 

[Angus Cowman]

I have said this on here before but here it is again
I knew a very successful cattleman that bought a pot load of calves every week and sold a pot load every week
He said if I sell high I buy high
If I sell low I buy low
Said he didn't concern himself with the fluctuations of the market
He had been doing this for a few decades and lived very comfortable with lots of land paid for by buying and selling calves

Same goes for the cow calf business
I have heard guys say it will take this many or that many calves to pay for that cow
But in reality the calves pay for the upkeep and the cost difference of that cow when you sell her and replace her minus the $$$ amount you depreciated on the cow while owning her
So she cost 2500 you sell 7 calves for 1000 minus expenses that is $3500
You sell that cow for $1250
New cow cost $3000
So $3000-1250= $1750
$3500-1750= $1750
So the previous cows calves made you $1750 profit plus you still have the original investment (the cow ) to re invest
I didn't figure the depreciation but that actually lowers the amount the calves have to contribute to buy the 2 nd cow

 

[kenny thomas]

I have a little different take on this. I don't borrow money to buy cattle but for this less say I do.
If at the first of the year I borrow $50,000 at 5% and buy calves. Lets say I have good luck and cheap gain and by the end of the year I only have $60,000 in them plus the 2,500 in interest. If the market goes bad and I sell them for 45,000 the bank still wants their 52,500 and everything else must be paid also. So to me I have lost money. Also since I may not be able to pay the bank what I owe them they are gonna be real slow about letting me borrow again the next year. Price goes down I lose money.

 

[jltrent]

I have a little different take on this. I don't borrow money to buy cattle but for this less say I do.
If at the first of the year I borrow $50,000 at 5% and buy calves. Lets say I have good luck and cheap gain and by the end of the year I only have $60,000 in them plus the 2,500 in interest. If the market goes bad and I sell them for 45,000 the bank still wants their 52,500 and everything else must be paid also. So to me I have lost money. Also since I may not be able to pay the bank what I owe them they are gonna be real slow about letting me borrow again the next year. Price goes down I lose money.

That is a good way of putting it. If you lost money by golly you lost it.

 

[SJB]

I have a little different take on this. I don't borrow money to buy cattle but for this less say I do.
If at the first of the year I borrow $50,000 at 5% and buy calves. Lets say I have good luck and cheap gain and by the end of the year I only have $60,000 in them plus the 2,500 in interest. If the market goes bad and I sell them for 45,000 the bank still wants their 52,500 and everything else must be paid also. So to me I have lost money. Also since I may not be able to pay the bank what I owe them they are gonna be real slow about letting me borrow again the next year. Price goes down I lose money.

That's correct, but if you do the same thing every year for 20 years, the gains and losses will average out. I'm sure that's how the large contract buyers in our area have it figured. It don't really matter what the sale price is to the long term bottom line, as long as you are buying and selling.

 

[Bigfoot]

I have said this on here before but here it is again
I knew a very successful cattleman that bought a pot load of calves every week and sold a pot load every week
He said if I sell high I buy high
If I sell low I buy low
Said he didn't concern himself with the fluctuations of the market
He had been doing this for a few decades and lived very comfortable with lots of land paid for by buying and selling calves

Same goes for the cow calf business
I have heard guys say it will take this many or that many calves to pay for that cow
But in reality the calves pay for the upkeep and the cost difference of that cow when you sell her and replace her minus the $$$ amount you depreciated on the cow while owning her
So she cost 2500 you sell 7 calves for 1000 minus expenses that is $3500
You sell that cow for $1250
New cow cost $3000
So $3000-1250= $1750
$3500-1750= $1750
So the previous cows calves made you $1750 profit plus you still have the original investment (the cow ) to re invest
I didn't figure the depreciation but that actually lowers the amount the calves have to contribute to buy the 2 nd cow

I apologize AC, but I can't follow the example. Can you hit me with it more time?

 

[kenny thomas]

I have a little different take on this. I don't borrow money to buy cattle but for this less say I do.
If at the first of the year I borrow $50,000 at 5% and buy calves. Lets say I have good luck and cheap gain and by the end of the year I only have $60,000 in them plus the 2,500 in interest. If the market goes bad and I sell them for 45,000 the bank still wants their 52,500 and everything else must be paid also. So to me I have lost money. Also since I may not be able to pay the bank what I owe them they are gonna be real slow about letting me borrow again the next year. Price goes down I lose money.

That's correct, but if you do the same thing every year for 20 years, the gains and losses will average out. I'm sure that's how the large contract buyers in our area have it figured. It don't really matter what the sale price is to the long term bottom line, as long as you are buying and selling.

How many on here are large contract buyers? Most are small operations and need to make a profit every year. I can not eat enough in the good years to last me through the bad ones. I must eat every day so I must make a profit all the time.

 

[bmoore87]

Feedlots losing $500 a head or more right now would think so. The buy high sell high and low/low works if it a more its a gradual controlled up and down. People have bought at near all time highs and had the market drop 30% or more on them in the span of a few months.

Good cows I have always thought you could spend a little more on since you might have 10 years to get your money back.

 

[TexasBred]

I was discussing cattle with a gentleman this evening, and he had an interesting theory. He views feeder calves, like I view the stock market. If someone where to say, put $100,000 in an unmanaged index fund, and the market went down. The only way they would lose money is to get out then. He views the cattle market the same way. He buys calves, and keeps them 90 days. All different sizes, and tries to add frame and value. He wasn't concerned at all about the recent drop. Even though he currently owns several bought before the drop. He said as long as when he sells the calves, he turns around buys more calves, the loss will never really be realized by him. I never really thought about it. He potentially started the year with $100,000 worth of calves. He has $80,000 now. He plans on buying $80,000 as soon as their gone. Just a conversation starter here, but does anyone else view the market this way?

It's like slowly bleeding to death. He's losing blood, just not all at one time. Next thing you know he'll sell and buy $20,000 and that will be all. Most times what he says is pretty much on the money but with this last bit price increase and him buying at an all time high he has lost...he just won't realize it until he liquidates.

 

[skyhightree1]

Most are small operations and need to make a profit every year. I can not eat enough in the good years to last me through the bad ones. I must eat every day so I must make a profit all the time.

I definitely agree with that.

 

[denvermartinfarms]

I agree with that thinking, I've went through those situations and went about it just like what he's saying. Also just like the stock market, you haven't lost anything until you sell them in bad times. if you can hang on and make it through without having to sell, you never lost anything, of course at a certain point calves can get big enough that you do have to sell regardless.

 

[Stocker Steve]

Just a conversation starter here, but does anyone else view the market this way?

Yes money can really be lost. How much money depends on your type of business, who your tax adviser is, and how many turns you make.

Traders and bankers like "sell buy marketing". Sell first -- then buy back the best deal in the same market that you sold in. It works in that they have by definition the cash to stay in business, and the bank' equity (but not the traders equity) is still there, AND the traders makes money on each inventory turn.

Beef producers who sell once or twice a year are different. They sell low or high AND do not buy back. So they just lost big $$$ this fall unless they had LRP. Sorry.

Share owners who panic and only sell out at the bottom are even worse off than producers. They often don't buy back for a long time - - and thus miss several years of rebound.

Trading skill and number of turns per year are more important than price, but price still matters. :nod: Question is which things can you control, and which risks can you reduce ???

 

[Stocker Steve]

It's like slowly bleeding to death. He's losing blood, just not all at one time. Next thing you know he'll sell and buy $20,000 and that will be all. Most times what he says is pretty much on the money but with this last bit price increase and him buying at an all time high he has lost...he just won't realize it until he liquidates.

Trad'in money.

 

[Stocker Steve]

So if you are a trader or a stocker operator or feed lot owner, and the price of calves doubles, so that now you only have 50% utilization - - did you lose money?

 

[midTN_Brangusman]

A great cattleman, which I'm sure you all have heard of, Mr. Gordon Hazard, has said that if you sell your big steer and buy your small replacement steer on the same market, your always going to make a profit no matter if the market is up or down. If you run your operation like this your profit will be nearly the same regardless where the market is since the spread between a 400# and a 800# steer doesn't vary a heck of a whole lot. So like stocker Steve has stated, those who sell on a low market and don't buy back are losing their butts! Mr. Hazard has a great book out that I would recommend to anyone in the cattle business, whether you have a stocker or a cow/calf operation, he has great insight and experience that we can all learn from.