Know your advantages in the cattle market

We just finished another marketing school in Idaho a couple days ago. I fully expected this school to be different and to be asked questions I’ve never been asked before. The group of people did not let me down. Over the years of teaching legit sell/buy marketing schools, I have encountered many questions and problems some people have gotten into by following advice from the sell/buy cozeners. Because these situations force me to think of something in a different way, they make me better. The folks that attend my schools raise my level of awareness. At the same time, I am aiming to raise their level of awareness.

Due to teaching the school and travel time, I wasn’t as plugged into the market as I usually am. Looking at USDA weighted averages it was easy to notice market turbulence. When I looked at sale results from Monday the Value of Gain (VOG) really got compressed on steers while heifers maintained a VOG that easily covered Cost of Gain (COG). Then by Thursday the VOG on both sexes was higher than COG for the most part.

When I write about VOG I am not talking about trading. All the VOG calculation does is answer the question, “Will it pay me to feed weight on?” Since most readers haven’t attended one of my schools yet, I feel this is easier for them to understand.

This week I am going to write about some of the questions I get asked most often.

Frequent questions

I will receive texts from people with constant regularity about the high prices in Nebraska compared to their home state. High prices get a lot of attention. The entertainers on YouTube will highlight them in their top quotes. One sale barn I do business at was featured on one of those top quotes. I spoke with the owner of that barn a few days later complimenting him that it must have felt good. He had a different perspective because the person that sold those cattle chewed his behind because the cattle didn’t bring enough. The seller of those top quote cattle lost money when he sold them.

Often when someone sends me a text about high prices in my home state their state has a higher VOG. This week in the school I taught I compared the VOG in Tennessee to Nebraska and the TN cattle had a higher VOG. The other thing to keep in mind is that it is cheaper to put some weight on in TN than NE. Since this is supposed to be a weight gain business, TN would have the advantage.

How much is enough?

How many head? And how much profit do I need to have is another frequent question. I do not have a solid answer for this because so many other things factor in. A person with six kids to support will need more scale than a bachelor if they are relying on cattle only to support the family. How much profit will depend on if we are talking about cows and calves or stockers. With breeding stock, we aim for a higher profit margin since the turnover is intrinsically slower due to the 9-month gestation period. With stockers we can turn them quicker so we can take smaller margins. I compare it to Walmart, razor thin margins with super high turnover. Walmart does sell/buy marketing only they have a different name for it. They call it VMI, Vendor Management Inventory. It was interesting that at our meet and greet in Idaho, a Walmart employee joined us that evening and he became really interested in my approach to sell/buy with cattle.

Be reasonable

Some people tell me they want to know how to make $600 per head or they are not interested in my school. In my school I talk about reasonable profits. Reasonable meaning it has to be enough to make it worth doing but not so high that it disqualifies any possibility of a replacement buy. If $600 is the goal, then stockers are out. It is not mathematically possible to get that kind of positive cashflow from them. If we get into trading breeding stock that kind of target is achievable, so right there we identified what enterprise that producer is going to be in to achieve the $600 per head goal.

Cattle traders

Some think the word "trading" is a dirty word, and they don’t want to become cattle traders. The definition of trading is the business of selling and buying or bartering of commodities. It doesn’t mean we are going to buy an animal at a sale on Monday and resell it at another sale on Thursday. We are going to run a legit program and find a way to add value to that animal and provide a service to our customer. I spend a bit of time and have an extensive list of possible ways to add monetary gain to animals that I cover in my schools. Monetary gain and value of gain are not the same thing, and I am certain they are not because the industry has a slang term for monetary gain.

Look at the advantages

Another topic is advantages. We often focus on the disadvantages of the area we live in and see another region as being advantageous to ours. As we drove across Wyoming, my wife was questioning what the cows were eating. At home I will leave behind grass that is quadruple the height of the grass that was available to the Wyoming cattle. We can easily conclude that Nebraska has the advantage. Then we stopped to get a pizza for lunch and that pizza cost $5 and fed all three of us. That family meal was 27 percent of what it would cost in Nebraska. Instead of focusing on the disadvantages we need to focus on our advantages and find a way to exploit them.

Some people are concerned that their operation is too small, and my schools may not be for them. We have been mentally programmed by people with no skin in the game to get big or get out. The people that tell us this have degrees falling off the end of their business cards, so we know they are smart. I have shared a stage with these people and as a college dropout I have easily proven that when it comes to marketing cattle, they are clueless. With marketing skills, we can run circles around the academics.

Be patient

Small operations have so many advantages. They can be a bit more patient and capture huge margins. With these huge margins they can experience rapid growth. Expanding the head count by over 30 percent per year would be easily achievable. This is due to covering the cost of living with other income streams and reinvesting profits from the cattle back into cattle. A 100,000 head feed yard that turns inventory twice a year mathematically has to buy over 50 loads a week just to stay full. This means thin margins. Their economy of scale is their advantage. The small operator can handle cattle the big feed yard can’t and can therefore buy those high-risk cattle, add value to them by straightening them out and then selling them to the big yards. This plays to the strength of each operation.

These small operations also do an outstanding job holding the line. In Nebraska we have a lot of small farmer feeders, and the packer must deal with these pesky guys. They are often the ones that bow up to the packer and hold the line on the asking price.

Cattle depreciation

Cow depreciation is a topic that has had too much emphasis placed on it and approached in the wrong manner. Never lose sight of relationships. This means we must know how to boil the animals’ value down to its core intrinsic value in order to compare. In every school I teach I have examples of selling “depreciated” out females and replacing them with younger ones and getting paid to do it. In the school this week, the example was selling a Short solid and replacing with a 3-year-old. I am not as concerned about cow depreciation today as I once was. I am focused on relationships and getting paid.

I have written about being careful of what we consume because it consumes us. When an idea is repeated over and over in our mind, we will eventually do it without even realizing it. When I cut ties with people that repeated an idea over and over to me, I saw a quantum leap in my business. I have suggested to others to quit listening to the cozeners for six months and see what happens. Spoiler alert: Their results improved.

Some will ask what I’ve been buying lately, and I tell them. They respond by saying those cattle don’t hit the board at whatever their target is. I know that is why they are undervalued. I’ve built a good business, and a long positive trading streak buying what others overlook.

Then there is the topic of spreadsheets and subscription sites. I highly suggest doing the equations by hand because what the hand does, the mind remembers. This sharpens the mind and eventually it becomes subconscious to see the relationships develop at the speed of an auctioneer. Some people that have attended my schools have built their own spreadsheets and done an outstanding job. I have seen two subscription sites, and they have math errors in the coding. This leads to problems for the people using them. The spreadsheet is no better than the person that built it. We can fake reputation but we cannot fake positive cash flow.

The opinions of Doug Ferguson are not necessarily those of beefproducer.com , beefmagazine.com or Farm Progress .