Dear Mastermind Member,

I had a great question from a client last night.

They had bought heifers several months ago as they were showing a good margin at the time. It was an increasing inventory buy.
So the spreadsheet showed with their COG a good margin taking them through to a heavier weight and condition score.
Now they are nearing that pre-determined weight the margin is no longer there.
Heifers killable are only making $1.60 to $1.70/kg while light heifers are making up to and over $2/kg. In some cases the same as steers.
When the buy was determined heifers killable were the same as now, $1.60 to $1.70 but the light heifers were only $1.35 to $1.45.

Is this a fundemental flaw in the KLR process?
Well certainly no one likes to buy stock, spend money on COG only to find there isn't a margin at the other end. (Actually in this trade there may have been an old buy/sell profit)

There is no flaw. When we are increasing our inventory the only knowledge we have is what is underpriced on the day. We cannot buy stock guessing what will happen.(the old buy now sell for more later routine). Like-wise
we cannot buy guessing what the margin will be in the future. We make the best decision with the knowledge we have at that time. No process is risk free so now we have to learn to manage risk.

So what do we do.

1) Firstly to reduce risk we don't have all our stock in one class.
2) Secondly we are looking for margins well before they "ready".
3) We look further a field for replacement stock.
4) We look to replace with a different type of stock.
5) Roll these ones over at no profit into smaller ones to buy time till margin opens again.
6) We don't listen to agents that haven't done the school.

The smart thing this client is doing is looking early at what is happening in that he doesn't have to sell the heifers tommorrow because they are too fat.
Remember at the school we said no element involving profit is risk free so there is always a risk that the margin may close. The risk is we don't know when that will happen. The closer an animal comes to being 'Ready' the
greater the risk.

With these heifers for example we could sell them out @ $600 to $650/hd and replace with cows at $400/hd.
We can then determine the profit from subtracting the already spend COG on the heifers or the yet to be
spent COG on the cows to determine what profit there is.

There are still good margins in lambs.

Certainly these are volitile times no matter what the market is. There has been a wild ride in the equites markets over the past few weeks.

I spoke to the manager of the Cargill works in Tamworth the other day. He said their buyer had come away from the weaner sales in Victoria shaking his head.
He doesn't know how some people are doing their figures but it won't be Cargill buying these stock at the other end at the prices people will need to get to make money.

Cheers Rod

P.S. Current weight 104kg down 4kg target 94kg 1st March!