How about Buy Retail and Sell Wholesale as a business model?

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Australian Cattle Industry

Cattle Farm in Queensland Country

The whole notion of buying at retail and selling wholesale would seem a crazy business model yet that is exactly the scenario which is adding a considerable burden to the already hampered Australian cattle industry. In fact it is crippling it.

Last week, I had the opportunity to spend 4 great days on a good friend’s former cattle station – 44,000 acres of Queensland country and it was an extremely interesting experience. Aside from the overall scale – vast – we also spent time on the next door station too, which came in at a lazy 220,000 acres, the harsh reality of life on the land was very clear.

Water

Given the current drought, dams and water supply on many properties are at historically low levels. The former owner of this particular station – one he had been on since the mid 70’s hasn’t seen water levels like the current, for more than a decade.

Grass

This means low level grazing, with fairly beaten up if any grass and of course low levels of water for the cattle. These are the two biggest variables in terms of not only cattle weight (and therefore price) but also in terms of survivability. Those that are of a cow and calf combination present a further dilemma – the cow is struggling to support the calf and itself. So how do you handle this? By removing the calf from the equation, the cow has a better chance, but then there is no new stock for next year – creating a whole new problem.

The thin grazing has been compounded by the arrival of cattle from the Northern Territory, where conditions have been even harsher. Some of these cattle have done well, further south, but many others are struggling. Such is their condition, that they may only be worth around $50 a beast. Just recently a similar herd were under the hammer at auction in Longreach – there were no bids. Why – because nobody has grass and water to take on more cattle.

Sale Price

On Friday, at the stock yard, we loaded a further 416 head, to be transported to a feeder lot, in order for them to put on weight. These were good Steers, although they were around 100kg lighter than they should have been. At market, they will currently fetch around $1.70/kg, valuing them at around $700 a beast. In better times, their improved weight would mean closer to $900 – $1000 a beast.

You may ask, why let them go now – why not hold them back and get a better a price – simple – these cattle are going backward and doing so quickly, hence the need to move them from the property.
Rising costs of production

Now against this backdrop, costs continue to rise. Diesel is sitting at around $1.55 a litre and to cover that kind of ground, you get through a lot. A mustering chopper is around $350/hour and it requires a few on a property like that. The rural sector has only in the past couple of years seen a wage catch up, providing a further headache for the farmer. Transport costs have increased substantially. The cost to the feeder lot was around $60 per beast. That means to get the Northern Territory cattle off of the property and into a feeder program would mean a loss to the farmer. In other words, after transport and auction fees, instead of getting revenue for selling your cattle, you get a bill.

Compounding matters, an increasing number of properties are operating with a no working dog policy – which means instead, more labour required and higher labour costs.

Live Export Ban

Bare in mind, the sector has yet to recover from the 2011 live export ban to Indonesia. The ban – introduced with the admirable intention of improving the treatment of animals – like much legislation arguably had the opposite effect. Cattle were instead stuck on the farms – which had little grass or water to support such a vast quantity, for an extended duration. The net result, many cattle starved or had to be destroyed and of course flooded the sale yards, driving prices down to uncommercial lows.

But what if it rains

Now of course, this can all change with some rain! Sounds pretty simple but these guys have had none for months and they are in the early rain belt. And is this to be the central pillar of your business model – IF IT RAINS??

Of course should it rain, the dams fill, the grass is green and lush, the cattle fat and all seems well in the world – or does it? What that then means is that everyone is hitting the market with good cattle and, as we know, oversupply pushes prices down further – hardly a rosey outcome!

So to sum up the business of a cattle station, your only upside is that there is rain, and grass, giving you good quality cattle, at the same time as everyone else, and therefore a low – sell at wholesale – price for your product.

The downside is just about everything else – wage costs rising, low product price, higher wage costs, increased legislation, your primary market is banned, your transport costs have risen, continued red tape to negotiate, drier conditions and plenty more.

World food demand and prices

Against this dismal outlook for the farmer, food demand globally is at record highs, as are many of the prices at end user levels. Think about what we pay for a nice steak at a restaurant and even at the supermarket level. A tiny trickly of that is flowing down to the farmer. A trickle is better than nothing, but in reality, we have some of the best product in the world.

With some constructive government support, not hindrance and road blocks, the Australian Cattle industry has a chance to be back on top of its game. With a majority government in place, this may well be something that can be delivered. However, in the meantime, life on the land remains every bit as challenging as it was for the early settlers, who battled to survive and make ends meet.

These days, the stakes are even higher – millions of dollars of debt, regulation and rising inflation, pushing costs to retail levels and all to produce a product that sells at wholesale prices.

Clearly, something needs to change or more farmers along with the tradition, knowledge and skills they have, will chose to leave the land in search of a more sustainable and regular income without the risk.

I know one that has – not an easy decision – but for him and his family there is no question that the path they are on, along with their work ethic, values and commitment – honed from years on the land– will set them up for the financial success and peace of mind that they truly deserve.

Originally from the UK, Andrew has been a market professional for almost 19 years, trading a wide range of global markets and instruments. As a highly regarded industry speaker, he has spoken alongside Sir Richard Branson, Robert Kiyosaki, Anthony Robbins and Tony Blair, empowering many thousands of people, from all over the world, with the skills, techniques and ...
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