Is the money ever really lost?

[Aaron]

He potentially started the year with $100,000 worth of calves. He has $80,000 now.

The real question is what did he originally pay for the calves?

If you buy 100k of calves and sell them for 80k a year later and think you never lost money - well that is just a new level of stupid to me.

 

[WalnutCrest]

If the prices are down, you've lost money ... but that's not the end of the world. If you doubt me, ask your banker if your borrowing ability is changed as a result of the lower prices. Ask your estate attorney if it affects that plan. Ask your insurance agent if it affects that amount of insurance you need.

Realizing losses on an emotional level (and in a productive way) -- even if they've not yet been realized in the act of buying and selling just yet -- is more important than about anything else in business.

In this current time with bad prices, a partner of mine and I are marketing cull cows as ground beef ... and we're getting prices above break even (after deducting butchering costs and travel). That wasn't the plan but he and I know we have to be diligent and creative, especially when prices are falling.

Sometimes the hardest work you can do when the pressure is on is to come up with a new idea that's also a good idea.

 

[WalnutCrest]

He potentially started the year with $100,000 worth of calves. He has $80,000 now.

The real question is what did he originally pay for the calves?

If you buy 100k of calves and sell them for 80k a year later and think you never lost money - well that is just a new level of stupid to me.

I think the thought goes like this...

1 -- buy 100 steers for 90,000 and put 10,000 of feed, mineral, hauling, vet bills, and management into them for a total cost of 100,000

2 -- when the calves are at target weight, sell them ... realize 80,000 for the 100 steers

3 -- on the same day, buy 100 more lighter weight steers for 60,000

...so, after this round trip, Dr. Gordon Hazard (who was referenced above) would say he still had 100 steers and has 20,000 in his pocket.

This is how he would say he made a profit.

 

[Aaron]

He potentially started the year with $100,000 worth of calves. He has $80,000 now.

The real question is what did he originally pay for the calves?

If you buy 100k of calves and sell them for 80k a year later and think you never lost money - well that is just a new level of stupid to me.

I think the thought goes like this...

1 -- buy 100 steers for 90,000 and put 10,000 of feed, mineral, hauling, vet bills, and management into them for a total cost of 100,000

2 -- when the calves are at target weight, sell them ... realize 80,000 for the 100 steers

3 -- on the same day, buy 100 more lighter weight steers for 60,000

...so, after this round trip, Dr. Gordon Hazard (who was referenced above) would say he still had 100 steers and has 20,000 in his pocket.

This is how he would say he made a profit.

Must work for the government.

 

[WalnutCrest]

The next year ...

He sells 100 larger steers for 110,000 (after having put 12,000 into them...and buys back 100 steers for 90,000.

He still has 100 smaller steers (just like in the first year), but now he has 20,000 plus 38,000 (from the second year) in his pocket.

The third year, he sells larger steers for 100,000 (after putting 8000 into them) and buys 100 small steers for 90,000.

He still has 100 small steers and now has 20,000 plus 38,000 plus 2,000 in his pocket after three years.

In Dr. Hazards case, he plowed the money he made into more land and more cattle and lived off his income as a vet.

 

[Stocker Steve]

This is how he would say he made a profit.

Not sure we all agree on how to measure profit. Seems to be a lot of denial and incomplete cost calculations in the cattle business.

Under some conditions -- success is staying in the game. No loan restructuring nor bankruptcy lawyers.

There is no way to avoid an occasional hit to your net worth. Some babble about various theories and always selling out at the top, but how many saw mad cow coming?

So a sell/buy commodity cattle trader may lose net worth during large market drops, but still be able to buy back a lower class of animals, and thus keep the pasture stocked. :cowboy:

Stock flow = Cash flow .

 

[WalnutCrest]

Agreed, Steve.

The ability to keep going is more important than making a profit in any particular period.

As it regards my example above, I wasn't necessarily advocating for that particular approach to accounting for farm profits, merely attempting to explain how some people (including the previously mentioned Dr Hazard) might look at things.

...he started with a 90,000 initial investment into 100 lighter weight steers...and three years later, he still had 100 lighter weight steers, but also had 60,000 in his pocket (after expenses). Sorta like owning a stock that pays a variable dividend -- because he still owns 100 lighter weight steers (as a result of buying smaller animals at the same time as selling the lather ones), his investment in cattle behaves similarly.

He's realizing a cash-on-cash return of 20% / year (on average) and still has his original investment (100 steers) ... which should appreciate over a lifetime in cattle along with a general rate of inflation.

 

[True Grit Farms]

If the prices are down, you've lost money ... but that's not the end of the world. If you doubt me, ask your banker if your borrowing ability is changed as a result of the lower prices. Ask your estate attorney if it affects that plan. Ask your insurance agent if it affects that amount of insurance you need.

Realizing losses on an emotional level (and in a productive way) -- even if they've not yet been realized in the act of buying and selling just yet -- is more important than about anything else in business.

In this current time with bad prices, a partner of mine and I are marketing cull cows as ground beef ... and we're getting prices above break even (after deducting butchering costs and travel). That wasn't the plan but he and I know we have to be diligent and creative, especially when prices are falling.

Sometimes the hardest work you can do when the pressure is on is to come up with a new idea that's also a good idea.

Don't know nothing about selling hamburger or partners, but today's beef price isn't bad. It might not be great, but it's along way from bad. IMO

 

[dieselbeef]

He potentially started the year with $100,000 worth of calves. He has $80,000 now.

The real question is what did he originally pay for the calves?

If you buy 100k of calves and sell them for 80k a year later and think you never lost money - well that is just a new level of stupid to me.

my way of thinking also...somewhere theres 20k missing I don't care how ya slice it...plus expenses

 

[Stocker Steve]

He's realizing a cash-on-cash return of 20% / year (on average)

Not bad for a country boy!

I would be interested in how cow/calf operators could do that?

 

[WalnutCrest]

He's realizing a cash-on-cash return of 20% / year (on average)

Not bad for a country boy!

<snip>

The numbers I used were fictionalized just to explain the idea. But I know you knew that. Just making sure everyone else does as well.

 

[WalnutCrest]

<snip>In this current time with bad prices ... <snip>

Don't know nothing about selling hamburger or partners, but today's beef price isn't bad. It might not be great, but it's along way from bad. IMO

You're right ...

Bad = lots lower than when we bought them a few months previously and so a new plan was needed for the ones that didn't cut it in our little program