Return Examples
Given the time lag between purchase and sale and the fluctuating nature of this
commodity-driven market, the traditional Buy-Sell calculation has recently been
updated to the longer term, more trading orientated, Sell-Buy calculation. The latter
calculation is more accurate for those looking to participate long term in the business
of cattle trading. The Sell-Buy calculation is more accurate because it uses the
sale price on any given day as a starting point in calculating what price and weight
replacement stock should be bought at to secure a desired profit accounting for
the cost of gain of growing the purchased cattle through to the exiting stock’s
existing weight.
The cost of gain (COG) used below is estimated and allows for the backgrounding
rate or feeding cost, transport to sale markets, levies and commissions. This COG
may vary from mob to mob.
The Sell-Buy calculation below is for GST registered ABN
holders who by definition are in the business of cattle trading.
The Buy-Sell (note the difference) examples that follow are
for speculators only calculating returns on a one-off basis.
Sell-Buy example generated on live prices for
a GST registered ABN holder:
Step 1. Calculate your
average Sell Price per head.
In this example we will assume from live averages that you sold out cattle at $675/head
(ex GST), as the average exit weight is currently
450kg and they may have sold at $1.50/kg
(ex GST) from current website prices (QLD).
Step 2. Estimate your
Cost of Gain (COG)
We estimate from past sales that the Cost Of Gain (COG) is $1.30+GST/kg for cattle
inducted at under 300kg. This COG amount allows for the backgrounding rate or feeding
cost, transport to sale markets, levies and commissions. If you are purchasing cattle
at over 300kg you might like to increase the COG amount slightly (to allow for less
gain in the system with which to disburse fixed per head selling costs).
Step 3. Calculate your
Repurchase Cost
This example will assume that the current cattle for sale weigh approximately 250kg
each. At the current price of $1.60/kg (ex GST, QLD),
your repurchase cost will then be $400.00
per animal.
Step 4. Calculate your
COG and add it to your repurchase cost
By using the example above of repurchasing cattle at 250kg, we then know from the
average sale weight of
450kg, we can expect a weight gain of
200kg per animal. We then multiply this estimated weight gain
by our COG figure from Step 2. Therefore, in this example our real COG would be:
$260
($1.30/kg x
200kg). We then add this figure to our repurchase cost calculated
in Step 3. Our break-even point on this replacement animal is therefore $660.00
(ex GST).
Step 5. Calculate your
profit!
Seeing as we sold our cattle at $675/head (ex GST), and our COG
to complete an animal is $660.00, our profit - before
annualising - is
2.22%
(($675
- $660.00
/
675)x 100).
If this Sell-Buy replacement margin is not sufficient you may decide to wait until
another mob are inducted that will give you a larger margin by being either cheaper
or lighter. You also have the option to purchase replacement cattle in another state
with a better Sell-Buy margin. COG will be higher in feedlot finished cattle and
swapping between classes of cattle (replacing steers with heifers for example) may
give a larger margin which could be offset at the next sale if you swap back.
By allocating the COG at the time of PURCHASE and due to the retrospective nature
of intermediate payments, on an annualized basis you should, on average get a better
result than initial calculations show. Annualised returns also depend on speed of
weight gain. Although a similar exit weight is presumed for replacement cattle,
BSM continually looks for opportunities to sell cattle early to achieve a better
annualized return for owners.
Buy-Sell example generated on live prices and
current averages for a GST registered ABN holder:
NOTE:Click here for an example for NON GST Registered
investors.
You wish to spend a maximum of
$10,000.00
on BSM beef cattle. The current purchase price to buy at is
$1.76/kg (Inc. GST). Subsequently
the current average weight purchased is
250.32kg. Using
these figures you would be designated
22
head with a combined weight of
5507.04kg. Your outlay
has been
$9,692.39 and
a Tax Invoice for that amount is generated for payment within 48hrs. Upon order
approval, you receive regular e-mail updates on paddock condition, market trends,
rainfall and so on.
During the time you own the cattle, every few months your cattle are weighed individually
at the paddock, and your portfolio is updated with the current weights. At these
stages you are required to pay a weight based grazing fee of $1.15
inc. GST for every kilogram gained since the last weighing. This is direct debited
from your selected bank account. Assuming the current average weight gain per head
is
195.61kgs, over the course of ownership
your
22
head of cattle gained a total of
4,303.42kg. Thus, during the course
of ownership the total of the weight based grazing fees direct debited from your
selected bank account would then be
$4,948.93
($1.15
x
4,303.42kg.)
After several months the Livestock manager notifies you that your animals are in
sale condition at an average of
445.93kg per animal. You
are either required to contact (via email, phone or fax) the Livestock Manager within
the specified timeframe to say that you will sell at the present Finished Sell Price.
Or to avoid missing the “Finished Sale Price” window, you may select
the complimentary management service option when you first complete the BUY NOW
page. The BSM Livestock Manager can then sell cattle at the optimum weight on your
behalf. Based from averages, the Finished Sell Price could be approximately
$1.56/kg. There were no additional
marketing or transport costs incurred as it was a farm-gate sale. Using the above
averages, your portfolio of animals would then be sold for
$15,304.32.
To work out your return, the following costs have to be deducted from your sale
proceeds:
|
Weight based grazing fee
|
$4,948.93
|
Total of all weight based grazing fees direct debited from your selected account
over the course of ownership. See above for breakdown.
|
|
Sale Transaction Fee
|
$612.17
|
4.00% agent's commission
from sale price of
$15,304.32
|
|
Compulsory Industry Levy
|
$110.00
|
$5.00
per head for
22
cattle.
|
|
Total Cost
|
$5,671.10
|
|
Your account would now look like this:
|
Purchase of Cattle
|
$9,692.39
|
A return of OVER
-1%
|
|
Sale of Cattle
|
$15,304.32
|
|
Less Costs of
|
$5,671.10
|
|
Amount paid to your nominated Bank Account
|
$9,633.21
|
Your Gross Profit on the initial
$9,692.39
outlay is
-$59.18!
Assuming your cattle will be gaining around
0.60kg per day on average
for the time you own them; that
-1% return has come
in
326
days!
Example generated on live prices and current averages for a NON GST Registered investor:
You wish to spend at the most
$10,000.00
on BSM beef cattle. The current purchase price to buy at is
$1.76/kg (Inc. GST). Subsequently the
current average weight purchased is
250.32kg. Using these
figures you would be designated
22
head with a combined weight of
$5,507.04kg. Your outlay
has been
$9,692.39 and
an Invoice for that amount is generated for payment within 48hrs. Upon order approval,
you receive regular e-mail updates on paddock condition, market trends, rainfall
and so on.
During the time you own the cattle, every few months your cattle are weighed individually
at the paddock, and your portfolio is updated with the current weights. At these
stages you are required to pay a weight based grazing fee of $1.15
inc. GST for every kilogram gained since the last weighing. This is direct debited
from your selected bank account. Assuming the current average weight gain per head
is
195.61kgs, over the course of ownership
your
22
head of cattle gained a total of
4,303.42kg. Thus, during the course
of ownership the total of the weight based grazing fees direct debited from your
selected bank account would then be
$4,948.93
($1.15
x
4,303.42kg.)
After several months the Livestock manager notifies you that your animals are in
sale condition at an average of
445.93kg. You are either
required to contact (via email, phone or fax) the Livestock Manager within the specified
timeframe to say that you will sell at the present Finished Sell Price. Or to avoid
missing the “Finished Sale Price” window, you may select the Free Management
Service option when you first complete the “Buy Now Pages”. The BSM
Livestock Manager can then sell cattle at the optimum weight on your behalf. Based
from averages, the Finished Sell Price excluding GST could be approximately
$1.42/kg. Using the above
averages, your portfolio of animals would then be sold for
$13,930.85.
To work out your return, the following costs have to be deducted from your sale
proceeds:
|
Weight based grazing fee
|
$4,948.93
|
Total of all weight based grazing fees direct debited from your selected account
over the course of ownership. See above for breakdown.
|
|
Commission on Sale
|
$557.23
|
4.00% selling transaction
fee from sale price of
$13,930.85
|
|
Government Levy
|
$110.00
|
at
$5.00
per head.
Total for
22
Cattle.
|
|
Total costs
|
$5,616.16
|
|
Your account would now look like this:
|
Purchase of Cattle as
|
$9,692.39
|
A return of
-15%
|
|
Sale of Cattle as
|
$13,930.85
|
|
Less Costs of
|
$5,616.16
|
|
Amount paid to your nominated Bank Account
|
$8,314.69
|
Your Gross Profit on the initial
$9,692.39
outlay is
-$1,377.70
Assuming your cattle will be gaining around
$0.60kg per day on average
for the time you own them; that
-15% return has come
in
326
days.
The actual return to an investor may vary significantly depending on rises and falls
in the Queensland Cattle Market (based on the Roma Saleyards average prices) and
the rate at which stock weight is gained. Refer also to FAQ
5 (Risks) on the "frequently asked questions"
page.