Inflation is of concern to many people right now. One headline I saw this week was “What Americans will do when inflation forces American households to spend 40% of their income on food.” Last year we learned the answer to that question. People are just rushing to buy things because of the headlines. This of course increases demand and drives up prices. It will also intensify persistent shortages.
Here’s something else that caught my attention. An article I read highlighted the effects of inflation on certain commodities. He pointed out that house prices had increased by 16%, cotton by 50%, corn by 50%, lumber by 200% compared to a year ago. Personally, I am skeptical about this because not everything is skyrocketing. Are some prices skyrocketing because of inflation or is it because of government interference in business when it closed last year? Whatever the cause, this is the journey we are on.
The economic catastrophe and gloom have warned against reckless spending, creation and borrowing of money. Tell us that will lead to the death of the dollar. Well, I also read this week that cryptocurrencies are now worth more than the US dollars currently in circulation.
I don’t know much about crypto; I know the basics. In the past, commodities were a good thing to own in times of inflation. As marketers, we need to understand the value of the relationships between the items in our inventory, money being a part of it.
Put the money to work
Here is an example. Years ago, I was buying four-weight heifers when this guy comes to me and says, “I don’t think these heifers are worth that much”, I told him I didn’t think my hundred bills. dollars were worth those heifers. At the time, we were in one of the phases of quantitative easing. I knew my bills were losing purchasing power quickly. Most people didn’t see it that way, they thought the market was doing very well because the prices of livestock were increasing every day. By purchasing these calves, I had a hard tangible asset that held in value while my dollars fell in value.
When we market something, we should improve our position. We need to grasp the value of time, lay off the risk, replace with something that will increase in value, and generate positive cash flow. Here is what makes a burr under my saddle. Some people think that since we are supposed to sell the overvalued and replace it with the undervalued, we keep the money when it is undervalued. I don’t see it that way. If we do a good job of marketing, we should be able to replace the inventory that we have sold and make a profit. I would much prefer something in inventory whose value cannot be manipulated as easily as fiat money.
What if we sold cattle and decided to keep the money. We decide to put the money in the bank to attract interest. If we left it in there for 120 days, the average interest would barely be $ 8 per person. A qualified seller / buyer could repurchase replacement cattle and return them within the same 120 day window and easily earn over $ 8 per head. One thing I’ve learned is that money is meant to flow, that’s how it grows.
To be clear, I’m not saying we should be spending every dollar we have on livestock and feed. We should have a reserve of money for emergencies, to pay the bills and to be able to buy something when it needs it.
The financial power of cattle
One of the many advantages of cattle is that they are extremely liquid. All it takes is a trip to the sales barn to be in or out of the cattle trade. When the market gets volatile prices across weights, genders, and classes fluctuate, creating opportunities to make good trades and generate positive cash flow.
If you decide to hold onto your money for a while, you might miss it. You may also find yourself in a situation where your money has less purchasing power. You also need to stay disciplined and not spend it on something stupid. I know people who take their money from cattle and put it into something else for a while. If you know of other investments, this may be an option for you.
This week the value of the gain remained well above the cost of the gain on feeders under 600 pounds. From there, it’s risky. Some auctions had heavier cattle with attractive VOG while others had low VOG on the same weights.
Geographic differences have been a big factor this week. If you were selling fats, it was next to impossible to replace them and make a profit by buying out substitutes in Nebraska. This could be done by buying them elsewhere. Steers nine weights and heavier, and heifers weighing 800 pounds and over appear to be the best fat substitutes.
For those looking for a virgin, flyweight calves are the place to be. They are inexpensive per head and currently have the highest VOG in the spectrum.
This week the fattening bulls were back 6-22. The unweaned cattle this week brought down slightly more weaned cattle, on some fly weights, to 20 on heavier weights.
For those of you who are believers, remember this parable of the talents. We need to trade and develop our assets, not bury them in the ground.