How to be profitable in the cattle market

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

How to be profitable in the cattle market

When it comes to marketing there is good news and bad news. The bad news is that when it comes to marketing, we have no idea what we are doing. This is only a systemic thinking problem, and it can easily be fixed. The thing is this thinking problem was like a peacock fanning its feathers for all to admire this week.

The Law of Polarity says there must be an opposite, so the good news is that when it comes to marketing, we have no idea what we are doing. Since the masses have no idea how to market cattle there is always money left on the table. It is this very reason we can start from the ground floor, scratch, and build a thriving business. I am proof of that.

This week was marred by a bunch of Chicken Littles running around squawking about the futures market and the Cattle on Feed report. The last three days I have been receiving texts of YouTube videos, TikToks and podcasts of the Chicken Littles. This is all the mainstream has?

I have also been receiving numerous testimonials from people who attended one of my marketing schools, and they are having a blast. One thing that is unique that I get to experience is seeing the masses of snowflakes crying about silly things while at the same time, under the same conditions, the people who got serious about making money in the cattle business are doing just that.

I have repeatedly written that to be profitable we must first decide to be profitable. Actions are follow through on the words we speak. I share this in my marketing schools. We think our thoughts are private, but the results a person is getting reveals what they have been thinking. Our thoughts direct our actions, and our actions get our results. It is so easy to see what people have been thinking this week.

Here is my favorite one from the week. This was on a YouTube video that was sent to me. The speaker was frustrated that none of the fundamentals were working, and he was blaming the board and the algorithms. First off, it’s never worked. The reason I can say that is because we have all these sayings: “it’s a break-even proposition at best. I don’t have to go to Vegas, I gamble every day the board opens.” Or we make some comment about the suits in Chicago. One would think that the lesson we learned in 2011 would be enough to deter people from ever paying attention to Chicago again. People my age have been mentally conditioned to understand that game is bogus, yet some of us still play it.

Sell/buy marketing

Here's the beauty of sell/buy marketing. It has been around for at least 100 years. It worked for JCPenney in his stores, and it is working for Walmart today. It is working beautifully in the cattle markets, when implemented correctly. If someone accidentally tripped a breaker in Chicago and the board failed to open today, it would not even phase a legit sell/buy marketer.

Sell/buy marketing is a real-time cash flow reckoning. We can see the relationships in real time, which is why we only deal with today. We cannot predict the future, which comes back to “things not working.” I mentioned it here months ago that feed yards were plowing hard into over-valued feeders. I point this out in my schools, that some of the profit trackers people follow are always wrong because they are six months behind the real time.

In the short definition in the previous paragraph, I mentioned cash flow. We deal in the cash market, and the word reckoning means the process of calculating, so we know things will balance. If we know what our cost of gain is, add in a reasonable amount of profit, use that to calculate a return on the gain, which is the ratio of dollars to pounds on a trade, we now have control. We now know what we can and cannot buy back at a profit.

Fats were down this week and for those who have no idea what they are doing, this is creating some uneasy feelings. If we sold fats this week at $1.81 and bought back nine weight steers in Kansas we would have an ROG of $1.15. This is not a good trade unless those cattle had a COG of less than a dollar. We could’ve bought nine weight heifers and had a ROG of $1.68 capturing a sweet margin.

We have freewill to buy what we wish. Most people want to feed steers, so they buy the loss. Some have decided to make money feeding cattle and will exercise their control by stopping bidding on the nine weight steers when they get to high. Instead, they will buy the heifers and secure a profit. With this kind of control whose fault is it really if we lose money?

2004, 2008, 2011, 2015, 2020 are all years that we saw significant market drops. It comes around; the market doesn’t just go straight up. Maybe it’s time to get off YouTube and learn how to market cattle through the dips in a manner that will positively cash flow. Also, if you look at the years it blows a hole in the theory of 10-year cycle.

Know your costs

I came across something else this week, too. It was an article written by Aaron Berger of UNL Extension. In his article he wrote that for a cow/calf operation grazed and harvested feed make up 40-70 percent of annual costs, and that these annual costs add up to $800 per cow unit!

Fifty-five percent would be the middle of the road and at $800 per cow these people have no shot at making money marketing cattle the conventional way. Even with the higher calf prices we are seeing this year those producers are still giving away feed and labor of producing those calves.

There has been no shortage of articles written on the importance of keeping our costs in line. I am in the same state Aaron is in and last year my CTK was $900 per cow and that included everything. Figuring things out is the difference between five-figure thinking and seven-figure thinking. My costs have also gone up 16% in the first 10 months of the year. Keeping costs in line gives us a competitive advantage.

Doing a quick calculation on a bred cow, the producers with the higher costs have cows that have an intrinsic value that is $700 less. To them it makes females look overvalued. To the lesser-cost producer it makes females look undervalued. Costs change relationships; that is the importance of keeping them in line. Not to try to starve a profit into a business. We’ve seen that method fail for generations so why do we keep trying it?

When we manage to keep our costs down, it opens up more opportunity to market females and capture some big margins. Margins that are way bigger than we could ever hope to capture by just selling calves.

If you are tired of the manic swings and want to commit to the decision of being profitable, no matter what the market does, I have schools scheduled for February and April.

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

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