Some people are acting like Santa came early this year. With the border closing, the market has shot straight up. With the sudden rise in the market this late in the year, the consignment slots are filled up at sale barns.

This is a good time for economists and academics to pay attention to what’s really going on. They give us mindless chatter all the time about supply. The supply is still there – it was not lost to an alien abduction. Since they can no longer cross the border, they are no longer available. There is a big difference between supply and available.

This is why COF reports are meaningless. It gives us the supply and nothing else. If the COF report came out and told us all of them weighed 300 pounds we would have some useful information because we would then know there would not be any fats available for at least a year.

Cost of gain vs. value of gain

With the rise in feeder prices, the structure of the market has changed and appears to be trying to find equilibrium right now. When I calculate value of gain from one auction to another, like I do every week, the VOG are nowhere near consistent. Not only that, but the VOG is lower.

I did a VOG on the spectrum from a feeder auction that took place on Monday for the class I taught this week. The VOG had a trough affect, which means it was high on flyweights then dropped below the cost of gain on the midweight cattle then rose above it again on heavier feeders.

Related:Stick to the facts and sell/buy

Another comparison I like to make just for my personal curiosity is to compare how much the market moved in price and how much the VOG changed from one week to the next. At this particular sale, every weight was higher except 9 weights which remained steady. Fly weights were up the most at 45 higher, and as the cattle got heavier, the rise in price tapered. Comparing VOG this week to last week, it was lower, with some weight brackets being over $1.10 lower.

If we have a COG of a dollar, and last week the VOG was over $2, it was paying us well to feed weight on. With the drop in VOG, it is not paying us as well to feed weight on, and in some weight brackets not at all.

This is why I do not relate when people rush to get their pom poms out when the price goes up. The ratio of dollars to pounds is not as good when VOG goes down. All a rising market does is prove how many incompetent fools can make money based off dumb luck because the market bailed them out of a poor marketing position they got themselves into. With legit sell/buy marketing skill, market direction doesn’t matter because the skill allows us to be self-hedged by exploiting relationships.

Related:Strong calf prices finish the year

Current cattle markets

This week feeder bulls were up to 58 back and unweaned calves could take a hit as severe as 27 back. We are getting into the time of year now that it is expected the cattle are weaned.

With the Thanksgiving female specials the last couple weeks, we now have a lot of information. Young pairs, first calf to 4-year-old, are the hot ticket. Pairs with 5-year-old cows saw a significant drop in price.

Bred heifers are good property right now. They are selling for a handsome amount more than a producer would have in them and well over their intrinsic value. They are also undervalued compared to the young pairs. This makes them a good sell and a good buy at the same time, depending on what we compare them too.

Bred heifers weighing under 1,000 pounds are selling a few hundred dollars back of those weighing over that target weight. Heifers weighing over 1,200 pounds are selling a few hundred dollars higher than 10-11 weights. For fair comparison, I used the same gestation period because that is affecting price as well.

When I compared the entire age spectrum of similar body condition and gestation period, first-calf heifers are the top of the bell curve. There is only a 2.5% drop in price for 3- and 4-year-olds. There is a huge drop in price for five-year-old cows coming in at 15%. From a bred heifer to broken mouth cow, the price decline is 35%. Almost half of that depreciation is based on one trip around the sun.

Related:Can the commercial cow herd benefit from reproductive strategies?

This should be a sign to people that follow the cozeners that the no depreciation cow herd theory is bogus. I will write a price soon that will blow it apart because I know people need more proof than what the market has been signaling to us for over a year and a half on this topic. The price drops only 1.5% between ages of 5 and solid mouth cows. This mathematically means the next big price decline after the cows are called short solid and broken.

Stage of gestation and body condition are also having a big affect on female price. These two factors coupled with the big price gaps between certain ages is creating the beautiful turbulence a legit sell/buy marketer desires to prosper themselves in a big way.

The myth of predicting markets

I said I’d get back to myth busting so here is one. Some people are big into this looking back into history to be forward thinking. I know their history so I wouldn’t listen to that. Steve Jobs on the other hand ran a successful company and he is quoted as saying “we can only connect the dots going back, we cannot connect the dots going forward”. To me that means we can’t even see the dots looking forward.

You see, we exist in the present, we remember the past, and the future is unknown. The cattle square exists in the present, it will tell us exactly what we can and cannot do right now to prosper ourselves. This is why legit sell/buy marketers say we only deal with today, and mean it.

If a person looks at seasonal price trends or 5- and 10-year averages, they are probably confused and upset right now. What happened from August 1 until now wasn’t supposed to happen, yet it did. There were many people extremely upset during the August through October time period. However, those of us that have legit sell/buy skills and ignore meaningless talk felt like it was Christmas time due to the heavy positive cash flow.

The danger of trends

Here's something to think about when looking at trend lines. In 25 days from now, 2014 falls out of the 10-year average and 2015 will still remain. That line is going to change dramatically. A year from now, 2020 will fall out of the 5-year average and change that line in a big way, as well.

Bills hit my mailbox every month. I cannot take a 10-year trend line to my banker and ask him for help to cover my expenses while I wait a decade for history to repeat itself. I must earn money today, legit sell/buy only recognizes today and this is why it works.

I have had a running conversation with a handful of producers who have been listening to the cozeners. They were told they had to start over with a virgin buy. These people took them at their word and did not do the math. After I convinced them to do the math, they discovered that they could easily buy back and capture their profit.

For some reason, they will not admit that they didn’t go buy back. The market was creeping up and they got this idea that was probably handed to them, to wait until December when the price drops. With this huge rise in price, the likelihood of that working out is probably out of the question. Now it will take a near- catastrophic drop in price to make it work for them, and if that happens, I’ll place my bet that other producers will cancel their consignments.

Following bad advice, whether through a one-on-one conversation or a podcast, costs these producers their profits and loses them money. This is why I say be careful what you consume because what you consume consumes you. They proved me right. They should have run the squares and trusted the math, because after all, the math way is the pathway.

Upcoming schools

Over Thanksgiving weekend, my wife was busy finalizing another school for the 2025 calendar. Come March 18-19, we will be in Bismark, N.D. Learn more about upcoming Mr. Cattlemaster marketing schools here.

This school will be of special interest to some, as the reason we are going to North Dakota is at the request of Mary Jo Irmen who teaches and helps people with financing. You may have heard of her company, Farming Without the Bank, that helps producers with the infinite banking concept.

Over the years, there have been quite a few of Mary Jo’s clients that came to my schools and they were all highly satisfied with how the system works. I do not know much about it, and have deflected questions about it in the past, so I am looking forward to this one. Mary Jo has stated it is her mission to change how agriculture is financed.