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Funnel everything in the cattle market

Put all of the news reports and market reports in the funnel and find the bid at the bottom of the funnel.

Doug Ferguson

April 12, 2024

6 Min Read

Other writers have asked me how I can come up with something to write every week without ever seeming to run short of ideas. It is easy, the market tells us a new story every week. This week it told us many tales, and if anything, the difficult part is narrowing it down.

I don’t know if it was the eclipse or something else, but people were in a mood at the beginning of the week.  Some seemed depressed, while others were very aggressive.  This set the stage for some interesting sales, that left many people thinking nothing makes sense.

Fear and bird flu

Then we insert birdie flu into the story and strike fear into the hearts of many.  To make matters worse, some of the storylines some of the entertainers are spreading are beginning to create some panic. 

This week it was possible to sell fats and replace them with heavy feeders capturing a positive cash flow of over $225 dollars per head. Why haven’t any of the entertainers talked about this yet?  All I did was some grade school algebra to calculate a return on the gain (ROG).

Put the click bait in the top

In my marketing schools I have a slide with a picture of a funnel.  I tell the group to imagine all the trendy things we hear about the markets going into the top of the funnel. Cattle on feed reports, bird flu, weather conditions, trade disputes, consumer demand and whatever else the click bait of the week may be all go in the top of the funnel. At the bottom where all this useless information comes out, we have the perfect distillation of it all, and we call that the bid.

The perfect bid

The reason I call the bid perfect is we can do math with it. Remember the math way is the pathway.  That is how I came up with the attractive ROG above from selling fats and replacing with heavy feeders.  If this is supposed to be a weight gain business, then isn’t the ratio of dollars to pounds what really matters?

The black swan event

Some people get offended when I say the information I listed above is useless. Let’s take birdie flu for example. We seem to keep finding more of it. What are we doing with that information?  Some seem to think it has been weaponized to crash the market. Did anybody believe that the market was going to keep going up like a rocket? I know they did, they promised us all in their articles and videos that if we thought prices were high a few months ago that we hadn’t seen nothing yet. Time and time again we have seen paid guessers and entertainers get this wrong. They are consistent and perfectly wrong. And they fail to claim their part of spreading the panic.

So the market did what experienced cattlemen knew it would do at some time, it reacted to a black swan event. Not all weights, classes, types, and sexes of cattle fluctuate in price at the same velocity. This volatility creates price relationships. Price relationships are what allow us to either prosper or lose money. It is up to us how we decide to utilize them. I gave the example above with that attractive ROG to illustrate how a skilled, highly aware, disciplined marketer that is focused on positive cash flow will use the perfect distillation of market information to hit their objective.

Marketing skills

That last part may seem a bit wordy. Most cattle producers have no idea what they are doing when it comes to marketing. We know this from the statistics. More people leave this industry than get in each year. We hear things like cow/calf only makes money three years out of ten, or feeding cattle is a break-even proposition. Our number one advantage in the cattle business is marketing skill. I followed that with awareness. This is knowledge of a particular subject, and paying attention to what is going on. 

We must also remain disciplined. This is the ability to give ourselves a command and follow it. To put it differently we are going to control our thinking. What would our opinion of things be if we stopped listening to the cozeners and entertainers? Then we must remain focused on our target which I assume is to make money. 

Focus is a weak point for a lot of people simply because we are easily distracted. The other part of that is as humans we like to overcomplicate things. Doing grade school math is too simple to be true, and it’s not sexy to talk about. While other people are losing focus and are not buying due to panic or some are beginning to panic sell because they are afraid the price will go lower, we begin to see volatility and some of us are utilizing it to prosper right now.

Geography and leapfrog trades

I’m going to throw out some more attractive things from the week. Geographical spreads is one. Five weights in some states are selling $300 per head cheaper than they are in other states. Feeder bulls were 20 back this week. That’s not as good as it has been but in my opinion that is still enough forced equity for me to reach under one. Unweaned cattle were up to 25 back. Fleshy cattle took a hit of 20 dollars. And with all the turbulence this week I think it is hard to miss all the leapfrog trades that were possible.

Female demand in markets

The corn planters are rolling in my part of the world, and true to form if the farmers have some cows that haven’t calved yet they just dump them. After watching these late calvers sell this week I can’t help but wonder if for the first time ever they don’t mind selling late ones.  Broken mouth breds and fall calving cows were the only ones that sold below their Intrinsic Value (IV). The demand for females remains strong.

Along the lines of demand for females I was shocked to see plain black open heifers catch a 40-dollar premium this week!  Memories and pain fade fast, just four months ago these heifer development producers had a difficult time selling their bred heifers for $250 per head more than they just paid for open replacements. To put it differently they will need to resell these heifers as breds for $1,000 more than they got for the breds they sold this year to break even, and that assumes nothing dies and comes up open. I’m now anxious to see how this betting on the come turns out during the female sales next winter.

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

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