Smart marketing beats low corn in fall run

Fall run is something I look forward to every year. For bull haulers the miles get crazy and the money gets tall. It’s very similar this year as a buyer. Usually, the calves seem to fall into our lap. That’s not the case right now, and we must go get them where they are.

Fleshy cattle discounts create rare profit opportunities

The biggest reason I hear for hanging onto the calves longer this year is the price of corn. These people all raise corn and think it makes sense to feed their $3 corn to their $3 - $5 calves. I agree with their logic. Here’s the rub, we must manage how much we feed these calves. Discounts for fleshy cattle range from 15-35 back. Dollars per head is ranging from $120 to $200. They still gave the corn away in the end. The old stale worn out joke "the cattle did good, I just done a poor job marketing my corn."

We hear things all the time about a grazing system that will make us profitable, a bookkeeper, balance sheet mechanics, genetics, feed programs, or adding more technology. Thing is, none of that matters is we give it away on sale day. Wanna make money in the cattle business: learn to market the stock and capture the value of all the other things.

The Value of Gain is still signaling this is a weight gain business. This idea of pouring corn to these calves, then getting hit with a discount, is like selling a seven weight for six weight prices based on dollars per head. This week I saw some fat calves take huge discounts. This opened up a rare opportunity, but only for a skilled marketer. The opportunity is to melt the condition off these cattle and advance them. What that means is we can make money by taking weight off. The discount is a huge part of this and the slide will help on the resell end. This will also require some management. The skilled marketer also knows this is the only time to use a cost to keep on a stocker trade, since it wasn’t a weight gain transaction.

Related: Mastering fundamentals yields $400/head profit

This week feeder bulls were up to 45 back and unweaned calves were up to 30 back.

Fence removal signals shift away from cattle production

Some people are obsessed with herd rebuilding and that is all they write and talk about. This is the part where I challenge them to do what people like me do, push the windshield down a two lane and look around. I wrote this over a year ago, the cattle left and the fences are gone. Those places are growing under-valued corn today. This week I saw more places where the fences were just recently taken out. I was shocked by some of them because I never would have guessed some of these guys would call it quits. I am certain they called it quits because there wasn’t a silage pile this year or any bales in the yard either.

Related: Market dip creates opportunity: Why pros welcome the board going lower

I received emails this week that the USDA is flirting with the idea of incentivizing herd rebuilding. We don’t need government intervention, simply because it never works out well. Look at the charts from 2020 and notice the huge dip. That was government intervention when they only allowed one shift at the kill plants.

The auction method is the closest thing we have to laissez faire free market capitalism, and it is signaling there is demand for young, bred females. What is lacking is market literacy and marketing skill to capitalize on it.

Remember I wrote earlier this year about some bull haulers I know who pooled their money together and bought a bunch of heifers to breed. Those guys saw the opportunity because they spend more time in sale barns each week than the people with the six-word job titles who are writing the articles on herd rebuilding. These drivers are more in tune with what is going on and if there isn’t some black swan event they may nearly double their money. The guys with a CDL look smarter than the guys with a Ph.D. I prefer to talk to drivers over the Ph.D. types because they ship cattle into and out of the barns every day, they know what’s going on.

Related: Contrary Thinking: The key to spotting cattle market opportunities

Young bred females command premium over intrinsic value

A female sale I watched was interesting. Every female in the first period sold at or above its Intrinsic Value (IV). Cows five years old and up in the second and third period sold below their IV. Pairs sold over their IV except the 3 in 1’s and were five years or older.

Gestation period affects the IV, and it also affect the Actual Value. This is why we must know how to do the calculations and cattle square breeding stock, just like we need to know how to do it with stockers. It would be easy for someone lacking marketing skill, or who was taught wrong at a cozener school, to think certain trades were good, when in fact they were not.

The cookie cutter theory of selling at a certain age to deflect depreciation has proven false the last two years, I’ve documented that well. We do not let the calendar dictate when we sell, we let relationships do that.

Strategic pair trading outperforms calendar-based selling

I have documented well on here during the last two years I can find trades where the market pays us to sell our older cows and replace them with the five-year-olds the theorists tell us to sell. Remember the math way is the pathway. While cows over eight years old in one period outsold five-year-olds in another period, this trade didn’t work this time. It would have us selling $465 value into the market and only getting paid $250 for it. This is why we must know how to do the calculations and have the market literacy to make solid decisions.

I gave a hint above, demand for young, bred females and 3 in ones over 5 and older were under their IV. This trade looks like this: sell the young breds in the third and buy the 3 in 1 in her prime while getting paid $450 to take $1,255 value home! Look we don’t have to calve anytime soon, we still have a bred cow, and now we have a calf to wean soon, and $450 cash.

Marketing skills trump production efficiency in profitability

Here's another example from that sale. Sell 3–4-year-old pairs and replace with cows of the same age in the first period. This trade has us selling $1,000 value into the market and getting paid nearly $1,700 for it. Not bad, that is pretty much the value of the calf.

What if we took advantage of the cookie cutter marketers who weren’t taught the right things and bought their five-year-old breds? That trade has us selling $875 value into the market and getting paid $2,600 for it! Not a typo. We actually did a better job marketing the calf by selling as a family.

What about the depreciation since we bought the 5-year-old? At this sale cows over 8-years-old brought less than $100 less than five-year-olds. Study the lesson.

My November school in Beatrice Neb. is sold out and the December school is over half full. Registrations for the school in Calgary Canada are through the Foothills Forage and Grazing Association. Sell / Buy Marketing School