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December 22, 2023
I watched another female special this week with great interest. After the one I watched last week and the Thanksgiving specials I thought that maybe the bred heifer market turned a corner. At the sale this week the buyers shunned bred heifers. (For reference these sales are all in my local region and the heifers are all third period.)
The average selling price of a bred heifer this week was less than, to right at what a producer would have in her. Many of the heifers sold below the sale average. If the producer is hoping to sell them for more than they have in them, calculating a break even, they were extremely disappointed. There was not even a return of the money, so we can forget about receiving a return on the money.
Some of these people are in the heifer development business, they do it every year and have built that reputation. Some were just plain greedy. They were betting on the come. They were hoping with cow numbers being down that there would be high demand for bred females and they would become worth a ton of money. In time this theory may be proven correct, it’s just that that time was not this week.
This is the problem with trying to time the market. We fail at it miserably. We need to learn to let go of the idea of trying to time the market. We need to get past the idea of cashing in and getting hog nasty rich by breeding heifers when the herd rebuilding takes place. We need to get past the idea of long-term cycles to decide when to keep heifers.
We instead need to learn to be value timers.
By becoming value timers, we will not need to guess the market or wish it to do something for us in the future. We just take what it gives us today. That means we will need to have market literacy in order to spot the value.
Over Thanksgiving I received an awesome testimonial from a producer that came to one of my marketing schools. The drought was forcing him to liquidate cows. Instead of selling them and then waiting for it to rain again he took what he learned from my class and culled a bit deeper into his herd than he cared to. He replaced his cows with stockers. At the time he sold the cows the market was a bit soft because everyone else was selling off a few cows. It was still a good trade that generated positive cash flow. At the end of summer he sold the stockers, which had inflated in value, and bought back two groups of bred females. The stockers were over-valued to the breds he bought and again he had positive cash flow. One of the groups he purchased were fall calving cows, and this guy hates the idea of fall calving. He calved those out and resold them as pairs a few months later doubling his money on them. He told me he has never had this much positive cash flow all the decades he’s been in business and he accomplished this during what may be the worst drought he’s been through.
This is what market literacy and value timing can do. (I will be speaking at a virtual event in January 16-18 called the Regenerative Ag Summit. I plan to share more on this story and capitalize on relationships and managing rising costs. The summit is free to watch.)
What if you were the guy that sold bred heifers this week? First off you need to know the market you are selling in to. Buyer desire creates relationships we will be capitalizing on. Buyer desire is signaling that they want females that will calve before the corn planter rolls out. This created a four hundred dollar roll back between third period and second period females. The third period bred heifers are slightly over-valued to open replacement heifers.
The legit sell/buy marketer has the literacy to spot that and secure their profit on the buy back, whereas the producer that is calculating break evens is upset because he thinks the market gave him a lump of coal.
Females in the third sold well over their Intrinsic Value (IV), until they were called over 8 years old. There was a huge drop in their actual value that left them selling well below IV. The same pattern held true for females in the second, only that the younger females sold just over their IV.
Fall pairs sold $500 to $700 more than breds of the same age and type, and they all sold well over their IV regardless of age.
People have become interested in the bell curve. I have backed off talking about this because many people look at it as a tool to time the market. That is not their fault it is how it has been presented to them. On the bell curve 3–4-year-olds in the third noticeably outsold bred heifers. And 8-year-old cows sold for $300 less than the 3-4 year olds. The bell curve remains flat once again which is why using it to time the market in order to capture appreciation and deflect depreciation has been a bust. Let this sink in. I have warned repeatedly not to follow this strategy this year.
Here's the thing about being a value timer. We are looking at the market to tell us what to buy, or keep, compared to what we have in inventory. This gives us all the control. Calculating break evens and selling based off age on a curve is hoping the market genie grants your wish and bails you out.
The last thing I will mention about becoming a value timer is it will prevent you from following trends or fads.
The feeder market as a whole is a weight gain business right now. If we look at it closer there are two things that stand out. Over aggressive grass calf buyers are beginning to erode the Value of Gain on fly weight calves. This is typical of their nature. The other thing is there is a huge drop in VOG right around the 6 to 7 weights. This drop set up some leapfrogs for the second week in a row. Even though fats got a little boost in price they are still undervalued to feeders. That’s what makes being a value timer so advantageous. We know what we can and cannot do in order to prosper ourselves.
This week feeder bulls were up to 40 back, unweaned calves up to 29 back, and fleshy cattle were up to 18 back.
The opinions of Doug Ferguson are not necessarily those of beefmagazine.com or Farm Progress.
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