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Eastern NE KS | The accounting in sell/buy is different than your approach.
First is the virgin buy. This can be looked at as part of the capital outlay to enter the business. Virgin buy of cattle is similar to land, inputs and equipment so the business is operating. I would take things a step further that all inputs and labor expense for the virgin are more virgin purchases to establish the business.
Next is a sale of this group of cattle. This starts the math at setting a maximum the operator may pay for his next set of cattle. But before the 'buy' you must reduce this gross return by the anticipated expenses of the caring for next set of cattle (feed, labor, gain to return to yourself/banker for the virgin buy and a reasonable profit). Cutting these values away from you gross return from the virgin set gives you a clearer idea of what you can pay for the next set.
The major leverage sell/buy has over buy/grow/sell is that sell/buy transactions are in essentially the same market. Up or down cattle markets don't matter much. You have everything in place for another turn.
I have a significant gap in my understanding of the sell/buy system. There is a tool called the 'cattle square' that allows you to calculate the price per pound for different classes/weights of cattle in real-time setting at the sale barn as the lots pass thru the ring. If the square says you can afford to pay $2.85 but you buy a set at $2.70. That's even better because it sets you up with even more profit from the sell/buy trade.
Doug Ferguson teaches a sell/buy class. He also writes a weekly blog about it in 'Beef Magazine'. All that I tried to explain above comes from reading his blog articles over the last 2-3 years. He is quite definite about proper use of the technique.
Edited by Doug61 5/16/2024 07:24
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Help me understand the sell/buy approach to profiting
