Think about the direction cowboys want to go

It doesn’t make sense

Some people are confused and frustrated with the COF report and how the market reacted to that, and that the female markets don’t make sense. Look at it this way, this is a post from the Mrcattlemaster Facebook page last week:

Sale results from yesterday (One location 4,500 head):

503 pounds heifers @ 270.50 ($1,360) High

520 pounds heifers @ 258 ($1,341) Avg

886 pounds heifers @ 200 ($1,772)

936 pounds heifers @ 2.10 ($1,965)

Bred heifers 977 pounds $1,950 Avg (High was $2025)

6-year old breds 1,230 pounds $1,975-high 1213 pounds $1,365

LowSS/BM Breds $1,100 to $1,400

Fats weighing 1,400 pounds @ $1.81 $2,534

I watched two female sales this week and the relationships looked the same, the only difference was that the price ratcheted down a notch. When we lay the numbers out like this what we are seeing makes perfectly good sense. The signal is crystal clear. Not only from a marketing standpoint but also an inventory management standpoint.

Take a deep breath

People need to take a moment and settle down. A year ago, we all heard that with cow numbers being down that the herd would rebuild and there would be high female prices and this great blessing of an overabundance of cash would be bestowed upon us. So far the guess has not aged well. Now, people are up in arms with the high placements of heifers. We don’t know what is going to happen yet. It’s not like heifers haven’t gone to a feedyard to be developed and AI then return to the country. Sure, some of those heifers are on the fast track to the terminus. I also wouldn’t be surprised if the future of some of them hasn’t been decided yet and they are just there because the producer doesn’t have the feed to keep them at home.

Intrinsic value

At the female sales this week everything sold over its Intrinsic Value (IV) until they were called short solids. The aged females were selling under their IV. Now again this is one of those situations we need to slow down and really pay attention to what we are looking at. I am sure it’s all over social media by now that there were $3,200 first calf heifer pairs this week in Kansas. There was one draft of those and it had seven pairs in it. Six drafts later heifer pairs were selling for $2,300 to $2,800 and the average on heifer pairs was $2,680. Bred heifers topped at $2,700, again that was one draft, and after that the price dropped to $2,200 with an average of $2,150.

The three-year-old females were worth more than heifers and from there managed to hold their value fairly steady right up until the vet called them short solids. At that point there was a significant price drop and that is when they fell under their IV. Teeth can cost us a lot of money in cows and kids.

Drought

Another factor affecting these female markets is the drought. I read an article that some communities in Kansas City have gone to a 4-day school week in order to conserve water. If it does not rain soon they claim they will be out of water come March first. That same article said that parts of Iowa are in worse shape right now than during the Dust Bowl. These conditions are hard on the female market.

None of that sounds too inviting and it makes it easy to get upset. Again, go back and look at the numbers above and there are opportunities to prosper.

Cost of gain

Yesterday at the sale barn I was at the lunch topic was LRP. No one there was collecting a dime from it. In fact, only two people have contacted me and said they made a little money from it. I sucked the air out of the room yesterday when I asked if they calculated how much it affected their Cost of Gain (COG).

I ran some numbers off an LRP quote I received on a load of steers. If I were to pull the trigger on it, it would raise my COG six cents, and that is assuming the subsidy pays for half of that price I was quoted. Let me put it differently, if I pulled the trigger on this and didn’t collect a dime, I just added an implied 3% death loss to that load.

Do cowboys wanna go?

Let’s get downright honest here, the reason this product exists is because for generations we have said we can’t make money marketing cattle. A great entrepreneur takes other people’s problems and makes them their own to solve, and this is the product that person came up with. To make it enticing the government subsidizes it. That is how they got crop farmers in the farm program generations ago, and now they can’t function without it. Is that the direction cowboys wanna go? If we would learn real legit sell/buy skill which costs a small fee, we have a skill we can pass on to the next generation. Or we can keep forking out big dollars on every group of cattle we have. I’m sure your agent will remember you at Christmas time.

This is from another conversation I had last week. This guy has a grow yard and was wondering if he should liquidate some cattle, letting a couple pens sit empty, in order to reduce the amount of interest he was paying. If he financed 100% of the purchase cost of a pen the interest rate of 8.5% would raise his COG eight cents over the year. If it was on operating costs it would raise COG six cents. (At this point people who know me know that I am comparing 8.5% interest to LRP in my mind.)

This producer has seen his overheads (OH) rise just like the rest of us. If he let a couple pens sit empty he would not have as many head to allocate the OH across, and this would raise his COG about 14 cents. Some people may have a hard time imagining why a feed yard would mess with developing breeding heifers. There it is, selling bunk space helps them keep costs in line, and it helps them to be profitable too.

I have heard the phrase “shooting in the dark” quite a bit lately. Take some time and run your own numbers to gain clarity on what you need to be doing in your operation. You can’t use the numbers I shared here as examples. Take ownership of your own business and run your own numbers as they will likely be different. Those numbers may lead you to a different conclusion than I came to here. I share this stuff to get readers thinking.

It’s a weight gain business

With the manic behavior of the board we are seeing the Value of Gain get shaken up a bit as well from one weight class to another. If we look at the entire spectrum it is still a weight gain business. Another thing to take note of, is that some southern markets were 90 cents back from Nebraska prices this week. Yet the southern markets had a higher VOG. Top quotes don’t mean much if the other guy is netting more.