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 $720/head (ex GST), as the average exit weight is currently 450kg and they may have sold at $1.60/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 $1.75/kg (ex GST, QLD), your repurchase cost will then be $437.50 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 $697.50 (ex GST).

Step 5. Calculate your profit!

Seeing as we sold our cattle at $720/head (ex GST), and our COG to complete an animal is $697.50, our profit - before annualising - is 3.13% (($720 - $697.50 / 720)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 $1.93/kg (Inc. GST). Subsequently the current average weight purchased is 253.97kg. Using these figures you would be designated 20 head with a combined weight of 5079.4kg. Your outlay has been $9,777.85 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 201.37kgs, over the course of ownership your 20 head of cattle gained a total of 4,027.40kg. Thus, during the course of ownership the total of the weight based grazing fees direct debited from your selected bank account would then be $4,631.51 ($1.15 x 4,027.40kg.)

After several months the Livestock manager notifies you that your animals are in sale condition at an average of 455.34kg 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 $1.73/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 $15,709.23.

To work out your return, the following costs have to be deducted from your sale proceeds:

Weight based grazing fee
$4,631.51
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
$628.37
4.00% agent's commission from sale price of $15,709.23
Compulsory Industry Levy
$100.00
$5.00 per head for 20 cattle.
Total Cost
$5,359.88
 

Your account would now look like this:

Purchase of Cattle $9,777.85

A return of OVER 6%

Sale of Cattle $15,709.23
Less Costs of $5,359.88
Amount paid to your nominated Bank Account $10,349.35

Your Gross Profit on the initial $9,777.85 outlay is $571.50!

Assuming your cattle will be gaining around 0.60kg per day on average for the time you own them; that 6% return has come in 336 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 $1.93/kg (Inc. GST). Subsequently the current average weight purchased is 253.97kg. Using these figures you would be designated 20 head with a combined weight of $5,079.40kg. Your outlay has been $9,777.85 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 201.37kgs, over the course of ownership your 20 head of cattle gained a total of 4,027.40kg. Thus, during the course of ownership the total of the weight based grazing fees direct debited from your selected bank account would then be $4,631.51 ($1.15 x 4,027.40kg.)

After several months the Livestock manager notifies you that your animals are in sale condition at an average of 455.34kg. 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 $1.57/kg. Using the above averages, your portfolio of animals would then be sold for $14,297.68.

To work out your return, the following costs have to be deducted from your sale proceeds:

Weight based grazing fee
$4,631.51
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
$571.91
4.00% selling transaction fee from sale price of $14,297.68
Government Levy
$100.00
at $5.00 per head.
Total for 20 Cattle.
Total costs
$5,303.42
 

Your account would now look like this:

Purchase of Cattle as $9,777.85

A return of -9%

Sale of Cattle as $14,297.68
Less Costs of $5,303.42
Amount paid to your nominated Bank Account $8,994.26

Your Gross Profit on the initial $9,777.85 outlay is -$783.59

Assuming your cattle will be gaining around $0.60kg per day on average for the time you own them; that -9% return has come in 336 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.



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