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Aiming for cattle profits? Check your stats

vectorbomb-ThinkstockPhotos artwork of cowboy riding market
Watch each Friday for Doug Ferguson's Market Intel blog on Beef Producer and BEEF magazine.
An understanding of the trends, and opportunities, available in the market starts with top-level recordkeeping.

I am at my daughter’s basketball game. There is 34 seconds left and we are down by one. Our coach calls a time out. No doubt he’s giving them instructions for an inbound play (we get the ball right under the basket) and then a defensive strategy. The players walk back out onto the court and line up. That is when I start throwing a fit. The ref hands the ball to the girl to resume play and before she passes the ball in, she steps over the base line, turning it over.

I knew something like that was going to happen. That girl leads the team in turnovers. I was throwing a fit when the girls walked back onto the court because in a close game like this with little time left you don’t put her out there, let alone start a play with the ball in her hands. The stats are against her, and they are against her for a reason.

Just recently at three-on-three league where they don’t use score boards (if you want to know the score and how much time is left the coach has to ask the scorekeeper) the same coach thought the game was tied, when his team was really getting blown out. I would think anyone who was there would know that since one team was scoring and the other wasn’t.

If you’ve ever heard me speak, I will mention statistics in the cattle business. The smart people in Denver have informed us that cow/calf operations only make a profit 3 years out of 10. This stat only tells us what the culture of the cow/calf segment is. I tell people to ignore this stuff because they are individuals, and it has nothing to do with them. They need to focus on their individual stats.

Go back to the paragraph where the coach had no idea what the score was. How many people are walking around not knowing what their checkbook balance is? Or what it costs to keep a cow for a month, or what their cost of gain is? All some people know is if the banker agrees to finance them one more year they are doing well

If you are reading this, you probably already know what those things or are in the process of figuring them out. Let me go back to the basketball team for another example. The girl that took the ball out and turned it over led the team in turnovers. She had more turnovers than steals. She was the leading scorer on the team because she never passed the ball. However, her shooting percentage was among the lowest on the team. She also gave up more points than she scored. This is what I call a “net negative” player. With stats like that she hurts a team more than she helps a team.

A lot of us have multiple enterprises in our businesses. Do we have an enterprise that is a net negative? Maybe it makes us a little money but takes up a ton of our time. Is it worth it to keep it around or would we be better off to end it and invest that time somewhere else? I realize some of these enterprises are what some people really love to do, and they will not get rid of them. I would urge those people to be honest with themselves and call it a hobby, and to be careful that subsidizing this hobby doesn’t siphon too much time and money away from how they really make a living.

Getting insight, identifying trends

Individual stats can go a little deeper and give us greater insight and detect trends. Using basketball as an example we have seen our daughter get some coaching and change her shooting form. This helped boost her shooting percentage. Different times of the year she is in different programs giving her access to different coaches but still playing the same competition. Under some coaches her stats will go way up, and then under another coach her stats plummet. The coaches with winning records are where her stats go up.

Let’s relate that to business. If you are a stocker operator or feed yard maybe you have one order buyer who seems to send you cattle that have more health wrecks than the others. Maybe you see more foot problems on cattle from one sale barn than any others you buy cattle from. Sometimes we tend to be able to buy more cattle out of one auction than another auction. Are we getting enough cattle out of the one to keep going back, or is our time better spent at a different sale?

Calf/calf people are really good at knowing the stats of their cows. They can look at an ear tag and tell you about that cow’s grand-dam’s production. Sometimes I think they miss what they are really looking at. Let’s say they buy a bull from the seedstock breeder down the road. They also bought two sets of heifers. They end up pulling too many calves out of those heifers and right away they blame the guy they got the bull from. If they looked a little closer, they may realize they only pulled calves out of one set of heifer they bought. Suggesting that the bull may not be the problem, the heifers are.

Back to basketball one more time. My daughter is gaining confidence in her ability to shoot three’s. She made some attempts in games this week from behind the arch and missed a few. This has caused her shooting percentage to drop. This doesn’t mean her shooting is getting worse or that she’s in a slump of some kind. She’s trying to push herself and grow as a player adding another threat to her game. She manages to hit iron when she attempts these so coaches are pushing her to keep trying.

Last week I got a call from past participant from one of my marketing schools and he was frustrated. He wasn’t always selling the most over-valued animals and when the auction was over, he realized he wasn’t buying back the most under-valued animals. I asked him to share a few trades with me and I just couldn’t figure out what he was upset about. He was generating positive cash flow each and every time. I know I am not supposed to tell people how they should feel but I really think this guy should be proud of himself. The thing is he wants to maximize his efforts. I doubt that is possible because we must make decisions to buy as the auction is going on. We don’t get to pick what we want after it is over.

Here’s the thing to remember about that. Amateurs pay to play the game and Pro’s get paid to play. This guy is certainly a pro.

Trends from the cattle market

The big stand out this week was geographical spreads, in both the feeder markets and female markets. A six-hour drive is all it took to see a big difference in price. With that said it is also noteworthy that if we compare prices on females of similar type and stage of production, or feeders of similar type by weight the same trend pops up nationwide. The only thing that bucked the trend was load lots of heavy feeders in the south. They caught enough of a premium to push them far into the over-valued range locally.

The female market once again placed great emphasis on young mommas. Heifers, whether bred or pairs, sold greatly over their intrinsic value. As we start putting some years on the female, we see her actual value and intrinsic value begin to converge, and eventually cows that were called seven years old or older saw their actual value drop below their intrinsic value. This dynamic sets up a robust opportunity to do some marketing that can do two things once again this week: add some cash to the account and we can increase our inventory valuation.

On a nationwide basis the value of gain was strong on fly-weight cattle. It will contract somewhere around 7 or 8 weights depending on what sale you attended. Then it shoots back up again before falling off a cliff. This really set a beautiful stage for over- and under-valued relationships. Some weights shouldn’t be sold right now, while other weights are a great sell.

Sometimes people will message me and tell me that what I outlined here is not what they saw in their local sale-barn. The trend I outlined above didn’t happen in one of my local sale barns this week. Some people walk into a sale and instead of trying to pad their stats they decide to blow ‘em all to heck. Remember the line about pros and amateurs

This week feeder bulls were 20 back and unweaned cattle were 5-13 back.

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

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