Cattle market is sending flares

This week I have been preparing for my next marketing school coming up in the first week of April. Being the only instructor that applies sell/buy marketing in my day-to-day life, I understand the importance of using real weights and real selling prices, from actual drafts that sold. I am the only one that does this, and that means I spend some time watching sales to gather the material I am going to use in the next school.

Marketing school preparation

Yesterday I watched sales on the internet in 13 different states and what I saw got me jacked up! If you are not as excited as I am, then there are clearly some things you do not know. Usually, I have to watch a sale for a while—maybe over an hour—to get the material I need.

Yesterday, I could watch a sale for a short while, see less than 20 drafts sell, and have the example I wanted. In 20 years of doing sell/buy marketing, I can only recall a handful of times where the market was as liquid as it is right now. There is an overabundance of relationships unfolding right now that a profit-minded cattleman can utilize. I say overabundant because there is no way we can utilize them all.

Profit margins

It feels like the market is sending up a flair to gain our attention. At a sale in Arizona, a roper could sell his big roping steers and replace them with smaller fresh roping steers and walk away with a handsome profit. I saw lightweight feeder bulls selling for well over $4.00 in Oklahoma and Missouri. A load lot of black 4 weight heifers in Nebraska cost well over $193,000.

There are some opportunities to capture some outstanding margins right now, and that also means, due to the natural law of polarity, there are also trades happening that will lose a ton of money. This is the beauty of legit sell/buy marketing and the cattle square; we can see what we can and cannot do in order to prosper ourselves in real time. Since we capture our profit on the replacement, we have control over the situation. Like I said, if you can’t see it, then there are things you don’t know.

Value of gain

The Value of Gain (VOG) on steers had the trough effect, or inverted bell curve, this week in the Plains states. The heifer had a VOG that steadily declined as they got heavier. The VOG in the south was on a steady decline as well for both sexes.

I have gotten quite a few calls from people that sold one of these undervalued classes, and they are wondering if they should hold onto their money or virgin buy the next bunch. After asking them a few questions, I discover they got skunked at one or two sales. I also discover they attended a different marketing school and at that school the idea is given to them that selling an undervalued set is to be considered a liquidation and the buyback is a virgin buy. Folks, we have to put a little effort into excellence. This is why I say things like, “keep the needle pointed in the right direction” or “get the five best buys."

Get your mind set!

Excellence is a mindset, and so is giving up easily. Mindset has become sexy to talk about these days, but its all just B.S. if it is not believed and implemented. Go to the sale and get comfortable, because you are going to be there all day. Pick off the singles and small bunches. This week, feeder bulls were up to 40 back and bawlers were up to 30 back. Piece them together and upgrade them. This is after all the original value-added marketing strategy that has outlasted all others. I will warn you that if you call me looking for permission to give up, I will not grant it. We will not run profitable businesses and leave a legacy for the next generation if we do that.

Fats are overvalued to some weights of feeders.

On the female side of the business, opportunities are just as abundant. Most females are selling over their Intrinsic Value (IV). The IV of females is changing in big ways month to month. This is due to rising expenses and the rising weigh up, and calf values. They do not always offset each other. My monthly cost to keep a cow is up $45 per month from two years ago, with most of that price increase happening just recently.

When we compare calf values to the cow-calf budgets the universities have released, it would make anyone wonder why cows are kept. This is why we need to learn to market females. If a person sold a heifer pair this week and bought back a fall bred heifer, they could easily capture $1,200 by selling $1,000 value into the market. You’re simply just not going to do that selling calves.

Remember value differences

Not all spring pair to fall bred trades will work. Some people think they are doing good job of marketing by paying attention to the bell curve and deflecting depreciation. This is not the case. We need to pay attention to the value differences and be sure we are getting paid more for the value than what we are selling into the market.

The bell curve is only a visual aid and an excellent teaching tool. Heifer to 4-year-old spring pairs of the same color and condition sold for the same price. Then there was a $300 depreciation hit on 5-year-olds, followed by a $200 depreciation hit on 6-year-olds. That price remained steady until they were called short solid where they took a $500 depreciation hit. Fall bred heifers to 4-year-old sold for the same money. And then there was a $250 depreciation at age five, and that price is what 5-year-old to short solid cows sold for. Broken and smooth mouth cows sold just off the scale.

Calving spread out

I like the buy of these old mommas in a one and done program. Even if the weigh cow market declines, we can strip a calf cheaper than we can buy one.

Open replacement heifers are in high demand. For what they cost this week, why not spend a couple hundred dollars more per head and buy one that is 8 months bred? The answer is simple, buyer desire makes the market. If these young mommas haven’t calved yet, they are considered late.

Here’s a not so implied hint: cattle buyers buy cattle year-round of all weights. We do not care when they calve. In fact, we’d like to see calving dates spread out a bit so we don’t have a huge glut of bawlers in a 60-day window. If it’s too cold to plant corn, it's too cold to have calves. This will also be a simple easy way to keep costs down. No need for expensive feed or gadgetry to keep calves from freezing to death. But to each his own. Pairs that had calves with froze off ears sold $600-$800 cheaper. As a buyer, I do love bargains.

Cost of gain

With these higher prices. death loss hurts much more than usual. When one dies, the value gets spread across the survivors and that can swing the needle on the Cost of Gain. The ability to keep them healthy and alive may be more important than ever, speaking strictly from a financial standpoint. Also, with the widening price relationships it may be more important than ever to understand them because being on the wrong side of one at these price points could easily ruin some operations. Be intentional, and market with a purpose.

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