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January 26, 2024
After years of playing AAU and league ball, my daughter finally got to put on a school uniform and play her first middle school basketball games this week.
Some of her teammates are extremely short on experience, and the teams they played against are in a similar melting pot situation. You can imagine how these games look. It's a circus, and that is also exactly how I would describe the cattle markets this week.
First the holidays shut the markets down, then it was the nasty weather that shut it down again. As I expected, buyers would be thirsty for feeders. It was no surprise that the market acted like a compressed spring that was let go. The thing I was curious to see was if the feeder market would impact the bred female market in any way, and that is where the surprises laid.
I think the thing that probably caught people’s attention in the feeder market this week was the 25-50 cent slide between five weights and six weights. Six weights sold for $20 more per head to $75 less per head than a five weight. It costs money, the value of the feed the animal consumed, to feed that weight on. No one is feeding weight on for less than $20 per 100 pounds.
Imagine being a savvy marketer and selling the five weights and buying the six weights. The market basically paid that person with market literacy to take weight home. “Here is $75 and 100 pounds. Thank you very much for getting this out of here. See ya soon.”
This is no different than watching some of the middle school basketball players miss bunny shots. The players that can make them are the leading scorers on the team.
Once the cattle weighed 700 pounds on up the Value of Gain acted like a compressed spring again. VOG would range from sixty cents to $1.60. Cattle under 600 pounds by far have the highest VOG.
This week feeder bulls were up to 40 cents a pound back of steer price.
Unweaned calves were discounted up to 25 cents a pound. Given the recent weather conditions, there is a not-so-subtle hint being given when selling strip and ship stock this week, and that is the seller doesn’t give a word that would be censored here.
If you want to make some money, do things that set your customer up for success. I am not saying that every cow-calf producer should wean That could be a disaster. What I am saying is strip and ship when conditions are a little more favorable and less stressful for the animals.
This week I noticed UNL has released their numbers on what they think it costs to keep a cow per year in Nebraska. Their estimate came out right at $1,300. Discount a heifer calf $100 to $150 per head for not being weaned and that is the difference between selling her for more than it costs to run the factory or not.
For those of you who do not practice the sell/buy marketing that I write about on here, that should get your attention and suggest some things need to change. Gross margins look good until you plug in the other stuff.
I was curious how the recent snow and rains would affect the female market. Would it breed optimism that we will have grass to run cows on? And would that optimism be further supported by the rise in feeders?
I had recently started calling bred heifers “dead equity” because there have been very few that have been selling for more than a producer would have in them. Until this week, it has at least been a return of money. The last couple months I have gotten to see train loads of the heifers I got out bid on coming back to town, so I know what they cost when these guys bought them.
To set this up, I should explain what I am using for a cost structure. I am taking my cost to run cows in 2022 and adding 20% to that (I did not run cows in 2023). I am then adding that number to the Cost to Keep (CTK) from the UNL estimation for 2023 CTK and averaging them and that is the CTK that I am using. I feel this is a fair number to use since my CTK in 2022 was 60 percent of what UNL estimated at that time and expenses have gone up considerably since then.
Add the CTK to the price of the heifers when they were purchased a little over a year ago and we have a money losing situation on our hands. We have invested more in them than they are worth.
If you raised the heifers, we value them at what they were worth when they were weaned, because at that point we started a new enterprise. If we own the pasture and corn stalks they ran out on what we charge ourselves market value, otherwise we’d be dollars ahead to rent it to our neighbor.
Of course, this is a break-even calculation. This is how most of us are taught. We are also told by “experts” to capture appreciation and deflect depreciation. By the definition of the word appreciation these heifer developers did that, but it is still a failure if using a break-even calculation to determine profit.
The beautiful thing about legit sell/buy marketing is it ignores break-evens and only pays attention to price relationships. In the recent past, people could sell dead equity bred heifers and replace them at a small margin with open replacement heifers. Those heifers caught a 12-cent premium this week and are over-valued to bred heifers.
It is my job to spot relationships that generate positive cash flow and here is a shocker. We could sell the bred heifers and replace them with 5-year-old bred cows.
The 3- and 4-year-old bred cows were sold for 15% more than bred heifers. The market has established that these mommas are worth more than bred heifers for several years now. The 5-year-old cows sold for 26% less than the 3- and 4-year-olds. This is just another testament that the 5-year-old and out program is no good. Broken mouth cows sold for 50% of what the 4-year-old brought.
Think of that, half the depreciation was loaded onto the 5-year-olds. It should’ve been easy to spot, even for those who have no clue what they are doing when it comes to marketing. $700 price drop between 4 and 5 years of age, then a fairly steady $100 per year of age depreciation from there.
5-year-old and younger females teetered on selling just over or just below their Intrinsic Value (IV). Over 5 and they sold below their IV. Coupling that with the fact that feeder animals are worth more than cows, we may be looking at buying opportunities, depending on what it cost the individual producer to keep a cow.
If you want to make money with cattle or win middle school basketball games, it will all come down to fundamentals and spotting the matchups.
My dad shared with me this week that he was at one of those winter banquets that institutions put on to make the producer feel good for being over-charged for their services, and they brought in a speaker who spoke about the markets. This speaker said what I’ve been writing on here for over a year, that there are not any market signals to keep and breed heifers.
When the mainstream guys start saying that you know it is bad and optimism has gone on vacation. The contrary thinker knows the winds are about to change and will be prepared.
The opinions of Doug Ferguson are not necessarily those of beefproducer.com, beefmagazine.com or Farm Progress.
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