Becoming a winner in cattle marketing is a process

Source: Farm Progress. The original article is posted here.

Becoming a winner in cattle marketing is a process

Last night at the Nebraska girls state basketball tournament, our local high school girls team won a thriller to advance against a team that beat them twice earlier this season. With 13 seconds left on the clock a freshman drained both her free throws giving our team the lead by one point. The other team got two shots off in the final seconds and missed them both. Remaining calm was the deciding factor. Nerves got the better of the other team and the shots they put up were too hard and ricochet off the glass.

I witnessed nerves get the better of many people this week. Some folks are eager to buy some cattle until they punch the numbers into their calculator, and they realize it is going to cost almost forty thousand dollars to fill a gooseneck. Some seem to have bought into the idea of “if you don’t get them bought now, you won’t get any” and seem to be panic buying. Others seem to think they can do nothing wrong and will buy no matter what the cattle cost.

Speed up and calm down

On a podcast about investing this week the host said to “buy panic and sell hysteria.” I admit I can’t make heads or tails of that because I am seeing both at the same time at the sales I was at both last week and this week. The best mentor I ever had told me we need to speed up and calm down. He said we need to remove the chaos from our lives and direct our energies with focus-move calmly and with confidence.

No matter what we do or think we will feel some kind of emotion, it is part of being human. Whether we have sound marketing skills or not will affect the emotions we have. With legit sell/buy skills we can remain calm, while those without it will be on either side of the spectrum of emotions. The reason being is sell/buy marketing shows us the relationships that exist. It doesn’t recognize high prices or that the herd numbers are dwindling.

Continuous sell/buy marketing

I have two definitions I use for sell/buy marketing. One is that it is a continuum of inventory liquidation and replenishment, generating cash flow and profit. It must be continuous. If it is not, we have a dispersal sale and are out of business. Some people are fair weather cowboys, meaning they won’t own any stock through the winter. They sold last fall and are showing up now to start buying again and they have gotten sticker shock. What it will cost today to buy animals is making the ones they sold last fall appear under-valued. With sell/buy marketing, our exposure to risk is the time between the sell and the buy. We can control how long this window is. I can’t help but notice these guys leave the auction early without even bidding on anything. A short while ago I wrote on here how high can we push this before people quit buying? For some people we are already at that point.

For those of you who are worried about the equity loss due to inventory valuation deflating when the market goes back down, as you can see some are already experiencing it due to not replacing promptly, and correctly.

Panic buying

Some of these seasonal buyers only buy steers, and this year they are throwing some heifers into the mix. They are trying to stretch their capital by utilizing the rollback. The fancy replacement heifers caught a premium of $12-15 dollars, but that is still cheaper than a steer. These guys took them right along with the plain heifers they bought. I do not know if this is happening all over the country, but these stocker operators that need cow/calf operations to produce the stockers they buy are not helping the cow/calf segment by doing this. This is the panic buying I am seeing.

Fly-weight cattle

Normally I write on here about using Value of Gain (VOG) from a seller’s point of view, to avoid price cliffs. I thought I had the card this week to buy fly-weight cattle. It turns out I was dead wrong. I watched as some rookie buyers plowed hard into these light weights and paid the same dollars per head as what five weights were bringing. What they did was buy a five weight, and when the sale was over, they loaded four weights onto their trailer. Now they get to burn through expensive feed to make these fly-weights weigh five hundred pounds, and then when they get there they will have more in them than they will probably be worth. They are burning capital and mismanaging the things inside the inventory pyramid. These are the buyers I mentioned that think they can do nothing wrong. And if any of you may be wondering what I did since my plan didn’t work out, I spotted a different relationship and bought those cattle, and I am pretty satisfied with what I accomplished. The math way is the pathway.

People have been asking me this question with greater frequency lately. Do I pay attention to relative value? Of course I do. I wrote about it on here long ago when I compared a traditional ESA or 529 to trading stockers. In my day-to-day business I will run metrics comparing it to several other investments. This is a know and understand yourself answer. What do you know? Are you even trying to make yourself aware of what you do not know? Some people answered these questions when they left an auction early. For some people, forty thousand dollars to fill a gooseneck is too uncomfortable.

Keep your focus and be calm

I heard on another podcast that aggregate inflation over the last two years is 22 percent. From a year ago feeder cattle are up over 30 percent. Since we turned the calendar over a couple months ago I, like any other producer, and feeling the sharp pinch of sharply rising costs for services. The relationships still exist between these things. The thing about it is we need to be sure to market these animals in a manner that we get our share too. It never fails, when prices get high others think they need to step in and try to fix our margins. Speed up, keep the intensity and keep your focus in the right direction and be calm. Winning is an event, becoming a winner is a process.

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

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