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Doug Ferguson | Dec 09, 2022
This week I wrapped up another sell/buy marketing school. This was the first one I’ve done with teenagers in the class. I was thrilled to have these two young men because our youth are the future of this industry.
We often pick on the next generation and say they are soft and question if they are capable of leading. I am guilty of it myself and it has also happened to my generation. It’s probably happened throughout time. No single generation has a monopoly on ethics, morals, grit or work ethic if we really think about it.
One of the young men at my class this week sat through 8 hours of lecture, then he went to his hotel room and did homework, while the rest of us went out for the evening. He and his mom had a long drive home, probably getting there a little after midnight, and I bet he got up and went to school the next day.
Each class is different. This group of people were the quietest bunch I’ve ever had. They just wouldn’t visit with each other. We use the same caterer for each school and even she commented on how quiet they were the first day.
On the second day of my schools, I get hot and heavy into trading and generating positive cash flow. I saw the light bulbs come on in their minds quicker than any other group and the energy elevated right away. They then became one of the liveliest groups I have taught. The second day the energy and excitement level are always higher when I show how we make money and how we exercise our control, which is the buy, to prevent ourselves from losing money. There is no guessing. With sell/buy we can see what we can do and just as importantly what we cannot do to prosper ourselves
On the second day of my schools people get excited and are smiling. Winning is fun, and this business should be fun. We may not always get to do what we want to do, as far as when or what to sell and buy. The thing is the market will take care of us if we utilize it in a certain way and it will help us prosper. With this new perspective people change from looking at the cattle business as a struggle and start seeing opportunities.
I pride myself on being the only current instructor with real skin in the game and real-world everyday experience, and I bring that into the classroom with me. Most of the examples I use in my schools are from real auctions, and real drafts of cattle that sold. (I do use some from weighted averages as well).
I use some of these examples as mental exercises. We do the math and here is what the trade looks like. I will then tie it back to the inventory triangle of cattle, money, time, and feed. I then want to have some discussion about resource management. How would selling the animals we just sold, and buying back these other animals affect our resources?
Back to those two teenagers in my class. They got a lecture on the importance of mindset, and the importance of attitude. They got a lecture on resource management, and they learned the importance of managing costs and how it affects relationships between different classes of livestock and how it affects the relationships of the resources in the triangle.
They learned how to utilize the math and implement market literacy to do trades that will generate positive cash flow. If their parents brought them to my class, I can assume they will probably also include them in some business discussions and take them to some sales. Just imagine how valuable these youngsters will be with that kind of experience when they graduate high school in a couple years.
That gets me excited. We can talk about trading cattle and managing resources for days. Our most valuable resources is our kids. There is always this discussion about what it takes to keep kids on the farm. I just told you. Get them involved so they can decide if they like it or not. Run a profitable business, because like I said earlier people get excited when I start showing how to trade and make money. This will attract, and that is the word we need to stive for: attract. We will attract the next generation. If we teach them the right things, they will prosper and their kids will be attracted to this industry too. Now I just described a legacy.
This week when I calculate the Value of Gains there is what I describe as the trough effect. The VOG is high on the fly weight cattle, then it contracts right in the middle of the spectrum, then it gets high again on the heavier feeders. On most of the market reports I looked at the VOG contraction in the middle is lower than the Cost of Gain.
The folks at my school this week know this is what I call a price cliff, meaning it won’t pay us to put feed on through that spot in the spectrum. But what if you already have those in your inventory? Feed through it. If we sell, we realize that soft spot and essentially subsidized they buyer. With the VOG being higher again we can recapture some of that by making them heavier since the VOG is high on the heavier cattle.
By understanding VOG we can spot price cliffs and avoid them. We know when it pays and just as or maybe more importantly know when to not feed weight onto cattle. This is the resource management I wrote about above. We would be devaluing our feed by feeding it. Also, if we understand VOG we won’t be bidding it away when we buy back cattle into our inventory. There are some marketing schools out there teaching people to do just that. If you bid the VOG away, you will run out of money.
This week unweaned cattle were up to 15 back, and feeder bulls were up to 30 back.
The opinions of Doug Ferguson are not necessarily those of beefmagazine.com or Farm Progress.
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Lessons from a cattle marketing class – Beef Magazine
