July 14, 2023
Last week I began this series of sharing my thoughts on selling the cows and getting into stockers because an expert or consultant thought it was too expensive to run cows on the place. I was quite surprised how many of you reached out to me after last week’s piece went up about switching to stockers. This week I will explore staying in the breeding stock business.
Keep running the numbers
What about the high cost of running cows? One neat thing about writing this column every week and putting on legit sell/buy marketing schools is I have kept market data every week for years. Some of it comes from weighted averages and some comes from writing down every draft from sales I am at. After noticing the trend of receiving calls about getting out of the cow business due to an expert’s suggestion, I went back through all those sale results.
Cost to keep
When I went through the results, I used a monthly Cost To Keep, which is only used in breeding stock by the way, of $150 per month. The reason I used that number is because it was more than double what my CTK has been and 150 is easy to use. What I discovered astounded me. This was a great exercise for me because it raised my level of awareness.
What stage of pregnancy is the cow in?
There were outstanding trades to be made with breeding stock and the bulk of them revolved around five-year-old cows. It has been possible to sell a five-year-old and replace it with another five-year-old and make good money doing it. The biggest contributing factor to the price relationships was the stage of pregnancy. From there, body condition, location, weather patterns (mainly drought) and age became factors that could lead to even better trades.
In order to do these trades, we must know how to accurately break down the value of breeding stock and compare. When we sell an animal, we are selling value into the market. When we buy the replacement animal, we bought value. To do a good trade, especially in a high CTK situation, we must be certain that we are capturing the full value difference on the trade at minimum, and to thrive we need to capture more for the value difference than it is worth. We got to be on top of things.
One paycheck a year?
If we try to run a cow/calf operation the conventional way of getting the one paycheck a year when we sell calves in a high-cost scenario we will certainly lose. But if there are three pillars to profit and two of them are gross margin and turnover, we can certainly check those two off by marketing in an unconventional way.
Some people reject what I suggest about marketing breeding stock. The two most common rejections are they don’t want to sit in a sale barn all the time, and they already calved once this year, and they don’t want to do it again, especially with someone else’s cows.
Examine the market on a regular basis
First you don’t have to be in a sale barn all the time. The cow business is intrinsically slower due to the long gestation period. For that reason, we do not need to trade as aggressively as we do with stockers. However, we do need to be looking at the market on a regular basis.
Secondly, about the work of calving. If you are going to run from the work, you may as well hide from the money. If we are not willing to do profitable things, why are we complaining that there is a lack of profit in the industry? The opportunity is there. No one owes us anything except to not interfere with our work.
Cow market moves
When we do legit sell/buy marketing we can only deal with today. I have left cow value slides in my power point from previous schools to illustrate how the cow market moves. The value relationships change dramatically, and it is this volatility that makes it possible to do great trades. I find it to be a great teaching tool. I cannot connect the dots going forward, no one can, even though some sell/buy cozeners are trying to do that. I can only connect the dots going backwards.
Some people are reluctant to do this sort of marketing because of the uncertainty the future holds. Every kind of marketing holds an uncertain future. Some people rely on forecasting, and they bet on the come, hoping to sell cattle for more than they have in them.
With legit sell/buy we accept that we have no idea what the market will do, we also accept that price relationships will continue to exist into the future. The difference is with the slides I show from the past we had no idea what the future was going to hold at that point in history. What we could see clearly was sell/buy showed us what was possible to do at that moment in order to prosper.
If we drive from New York to California, we can’t see that far and we can’t see the detours before we leave. Yet we can still arrive at our destination. Identifying the profitable relationships is the same thing, we must know how to read the map. But if we are relying on an “expert” who has never seen legit sell/buy marketing, we may need a better co-pilot.
The thought of being able to run a cow herd in a high-cost situation probably seems too good to be true. There are a couple things to be aware of. First, allow me to explain that when we do legit sell/buy trades with breeding stock we are up to our chin in trades that would make us $100 per head profit, and we are up to our ankles in trades that would make us >$1,000 per head. In the high-cost situation we need to play in that shallow water. When we implement legit sell/buy we have control over the buy, so this situation is exactly what we want. We should know what we have in inventory and what its value is. This way we can look at the market to tell us what to be buying.
The second thing to keep in mind is volume. I ran the numbers again this week with the current markets and using the $150 CTK. With calf prices where they are we would have to turn 50% of the cows twice in one year. If we have 100 head that will not be a problem. If we have 2,500 head -- we have a challenge. Location will also be a factor. Where I live there are a bunch of sale barns within a short driving distance. In other parts of the country this is not the case, so you will have to figure something out, as far as available supply to buy from and shipping costs, if you’re going to implement this sell/buy strategy.
Know your market
This week I spoke to cow/calf people from across the country. The female market is extremely region-specific right now. Some people tell me their markets are providing a good income from breeding heifers and reselling them. Locally, where I am, an open feeder heifer is worth a few hundred dollars more than a spring bred heifer (we shouldn’t be breeding them when we can buy them cheaper as breds) and fall breds are the same price as feeder heifers. One thing we all seem to be seeing is that females are holding their value very well from age three all the way up to age 8. Some broken mouth cows are outselling bred heifers by a couple hundred bucks. Know the market you are selling in to. Examine the relationships and the way will be shown to you.
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