Ask a Banker | Trading With Trust
Banker offers tips for buying and selling with confidence
By Katrina Huffstutler
In business, integrity is everything. It’s what separates the good deals from the bad ones. Integrity separates the good dealers from the bad ones, too.
Ken Leiber, president of Texas Livestock Marketing Association and National Finance Credit Corporation of Texas, sums it up best, “You can’t out trade someone you can’t trust,” he says.
“You always assume the other party is going to do what they say they’ll do. But if they’re not planning on following through and doing everything properly from the beginning, you can’t make a deal that will protect yourself from that.”
We asked the Fort Worth-based banker and TSCRA director for his best tips for identifying both sellers and buyers who will make the grade.
Buyer beware
As a buyer, you know if the money is good or not. But that doesn’t mean there’s nothing to worry about, Leiber says. The buyer must know what it takes to get clear title in the state in which they are doing business. This is especially important when it comes to trading cattle.
“When you make a deal, be sure the payments are handled properly so that you take the cattle free and clear,” Leiber says. “You want to make sure that possession changes hands at the point of the transaction. As you lose possession of your money, you need to gain possession of what you’re buying.”
It gets more complicated when buying for a future delivery, but Leiber says there are certain steps that can be taken to improve your odds of satisfactory results.
“If you’re buying some cattle in March and want them delivered in the last part of May, you need to know a few things about the seller and his operation,” Leiber says. He suggests considering the following questions:
- What is the seller’s history and experience in the business? Is he stable? Do you trust his integrity?
- Have you been out to his operation and looked around? If so, do you get a good feeling about it?
- What do you know about his business plan? Is he selling cattle at a logical time in the production process? Are there any liens or other potential claims against the cattle?
- Does his country look like it can support the cattle until delivery?
“You want to make sure there are no signs or any indication that his banker is going to demand payment or foreclose on those cattle 1 month in,” Leiber says. “If his banker takes them because of other credit problems, your contract and your down money may be gone.”
He emphasizes as you go into the future with any deal, it becomes imperative to get the details in writing.
“Both of you should want that agreement in writing,” he says. “Because there’s a good chance when you get there, one of you is going to wish you hadn’t done it, and your memories may differ a little bit, depending on what you thought was going to happen versus what really happened. It’s human nature to have a bit of selective memory loss.”
Selling success
When selling cattle, the stakes are high. How do you know a new buyer is good for the money they’ve promised? Leiber says it comes down to evaluating their honesty, professionalism and financial responsibility.
“You’ve got to deal with people who know what they are doing, are reputable and whom you trust,” Leiber says.
If you don’t know them well enough on your own, he recommends asking around. Do your due diligence.
“Find someone whom you trust who has done business with them,” he says. “I like to say, ‘I can’t know everybody, but if someone I trust says they trust you, we’ve gone a long way down the road to building a relationship.”
He says if a buyer is not forthright, it’s probably not the first time they have been part of a bad deal. However, today’s high-tech age of interstate sales does bring new challenges in knowing who’s who.
“It gets harder and harder to know as much as you’d like, but you have to come up with ways to get yourself comfortable,” Leiber says, “because you have to be able to match their integrity with their ability to pay. One is no good without the other.”
He says that while bankers cannot and will not give out their customers’ information without their consent, you may always ask a potential buyer if you may speak with their banker to confirm financial responsibility. With the customer’s go-ahead, the lender usually will be glad to offer their seal of approval on their strong borrowers.
“As a lender, we know our customers. We know how they do business, and we know what we have committed to them,” Leiber says. “We can usually give the seller comfort to know that we have a relationship with his buyer and that the buyer has credit availability and money to do what he wants to do. Conversely, we might have to say, ‘I’m not sure. Tell me that transaction size again. I’m going to have to talk to my borrower before I can answer that.’”
Leiber has a favorite story from one of his late colleagues, someone he calls one of the best cattle traders he ever knew.
“There’s always negotiation going on back and forth, and there’s always a ‘Well, so-and-so bid 50 cents more, or a dollar more.’ He had a great comeback,” Leiber says. “He always said, ‘Well, just remember if you take his bid, you get his money. You take my bid, you get my money.’”
It means if a buyer is bidding high compared to other markets, you may want to think it through, Leiber advises. The more trouble a buyer might be in, the more likely he is to bid higher because he might just need those cattle to keep his cash flow going.
“If you trust him and you’re equally sure that he’s going to pay you, you ought to take the higher bid,” Leiber says. “It’s a simple thought, but it’s really good to think about when you’re selling. I can live a long time selling cattle a few dollars too cheap, but I won’t last very long if I don’t get paid for the cattle I sell.” ❚
“Trading with Trust” is excerpted from the May 2017 issue of The Cattleman magazine.