Year in review 2016-2017, Northern Territory Cattlemen's Association
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Livestock -- Northern Territory -- Periodicals; Beef cattle -- Northern Territory -- Periodicals; Ranches -- Northern Territory -- Periodicals
Northern Territory Cattlemen's Association
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Positioning for Prosperity-Is it a beef boom and will it last? What does EBIT stand for? Earnings Before Interest & Tax. So youve got all your revenue in and youve paid all your operating expenses, what you are left with is EBIT. Then the interest and tax comes out and youre left with net profit after tax. All of our (Holmes & Co) analyses end at EBIT simply because the amount of debt that you want to employ is a discretionary amount. The statement that at least 75% of the total business EBIT in any decade will be generated in only 3 of those years is true for beef in both the north and the south of Australia, as well as for wheat and wool. The critical point is that you need to capture those three years and if you dont theyll pass by your front gate without you even knowing. Im going to go back to the start of 1987 to try to answer the questions posed to me by Tracey (see graph 2). Most of the time beef has traded in a channel of 300c 500c dressed, it moves outside that channel occasionally on the low side and on the high side, which is what is happening now. As you can see, the trend line on this graph is essentially flat. In order for this line to be lifted up, and for it to become an increasing trend over time, whats happening now either has to go higher or go on for longer. If you go back and look at Graph 1 you can see that these sorts of events (like what were experiencing now) are nothing new its all happened in the past. So, are we now experiencing a fundamental change and are we now entering a new era of prosperity? Maybe. But when you look at these data the answer is: probably not. A trend that youll notice on these graphs are in 10 year periods a book was written about this 30 years ago called The Cattle Cycle and its been a real feature of the global beef price (particularly in Australia) and relates to the statement I made about EBIT. unless your herd is productive, the three year periods in any decade will just pass you by and wont make much of a difference to your operation. For example, look at the period 2003-2012. It is easy to see, that all other things being equal, most of the EBIT would have been generated in the first three years. At any given time I have no idea what the beef price is I dont follow it and if I turn up to someones place to do some work I generally have to ask them because, to me, it doesnt matter: the rising beef price is like the rising tide it raises all boats. But within any given year between herds, price received is not a profit driver, its almost irrelevant. The relationship between EBIT and price received is effectively zero in northern Australia within years. Its foolish and a flawed strategy to chase premium markets, and so to be preoccupied with the beef price, to me, is a complete waste of time and a distraction. The only time Im interested is if Im doing budgets or financial analyses. You may not feel that this comment about price is appealing at all, because price is a terrific subject for social discourse when beef cockies get together anywhere around Australia they talk about the price and the weather and they cant do anything about either of them, so I wonder why they talk about it? Nearly 40 years ago I got seriously interested in investing, for me it was the share market, and I had to come up with an operating model for that. Very quickly I realized that its a complete waste of time looking at what the share market indicator is its just noise. There are all sorts of experts predicting what it will do and none of them get it right consistently over time. Once I identified a few good companies, I didnt even bother about the price Graph 1: Long term real Australian beef prices 1949-1016 Graph 2: Long term real Australian beef prices 1986-1016 60 NTCA YEAR IN REVIEW 2016/17