Keep your eye on today and not the future

I have been getting this question a lot lately from people who are interested in sell/buy marketing. They are concerned that they will have to start spending a lot of time in a sale barn to figure out what is over and under-valued. This is not the case; that is what market reports are for. After getting an education in legit sell/buy marketing, the market reports will take on a completely different meaning.

Cattle market what if’s

We can spend an awful lot of time this week talking about bird flu, plant fires, cattle numbers being down, cattle on feed reports and how the board reacted. This is all meaningless information; it doesn’t tell us what we can do in order to prosper right now. The bid is the perfect distillation of all that information. It is perfect, because we can do algebraic equations with it and figure out what we can and cannot do right now to generate positive cash flow.

Value of Gain

This week we saw the trough effect again surrounding six weights. Cattle lighter than that had handsome Value of Gain (VOG). Cattle weighing over 600 pounds became a bit of a guessing game. At some auctions the VOG may have stayed extremely low. At other auctions there may have been a weight that broke out and had a high VOG. Leapfrogs became a regular thing this week on the heavier weights of feeders. I am not concerned about any of this at the moment. This market has run straight up, and it needs to find a bit of equilibrium. This will sift out soon enough.

Unweaned calves were up to 15 back, the heavier the bawler the bigger the discount. Feeder bulls were up to 20 back.

Demand in markets = females

On the female side of the market a few things are clear. Demand for females is high. The one sale I watched this week and market reports from a few others all showed the same thing. Everything except first calf heifers that are in the first period are selling over their Intrinsic Value (IV). Some of these are selling well into four figures over their IV. The high prices of weigh cows and calves is making the IV high as well.

Last week we proved the cozeners wrong and proved the value of old cows. Here’s a fun one, it was like shooting fish in a barrel selling short solid (SS) and broken mouth (BM) pairs and replacing with the under-valued bred heifer. This trade was so cash heavy a skilled marketer would find themselves in a situation where they could sell one and buy two or have enough cash to pay all expenses to run the bred heifer for over a year! It was also possible to sell SS and BM bred cows and replace with the bred heifer.

Bred heifer markets

The bred heifers in the first period were so far off the pace that the quickest way to get them to appreciate in value is to give them a shot of Lutalyse. They will go up $350 in value. There is also high demand for open replacement heifers as they are catching up to $20 premiums right now.

Couple the premium and the Cost to Keep (CTK), and it is clear that the bred heifer and heifer pair market will have to skyrocket just to get a return of the money. Let’s face it, $4,000 pairs don’t look so whoopie when we do this math. I should also point out that even though OCV heifers are catching big premiums right now, weigh cows are selling for more dollars per head.

When examining the relationships between females, it is hard not to notice the size of the calf at side down to the stage of pregnancy is having a huge effect on the actual value. The closer she is to weaning the calf the more she sells over her IV. The female market has factored in Time Value of Money (TVM).

Time value of money

TVM means money in hand today has more earning potential, and we can turn money in hand today into more money tomorrow by investing it. Getting the same amount of money tomorrow is less valuable to us than getting money today. With the biggest premiums being paid for pairs with big calves and smaller premiums being paid for bred cows, it is clear that producers are in a hurry to get to weaning time and get their hands on the calf check.

As investors, we spend time, or at least some of us do, thinking about making more money. The best investors don’t just think about making more money; they also think about making it sooner. That’s because thanks to TVM, sooner usually leads to more.

Go back to what I wrote up above, the monster trade was to sell the pair and put more time between yourself and weaning. The unskilled marketers have bought into the narrative of needing to produce calves to wean, and because they don’t have awareness, which is knowledge of a particular subject, they are betting on the come and overpaying for the females that will get their calves to weaning the soonest.

The reason something is overvalued is because that is what everyone is bidding on. The skilled marketer will sell them what they want and replace it with something they don’t want and pocket the difference along the way. So really, the producer that is capturing the TVM is the skilled marketer, but he his doing it in a manner that is contrary to what others are thinking.