Beef Producer Logo

Running the numbers can help cut through the emotion, but don’t leave out other factors at decision time.

Doug Ferguson

March 3, 2023

6 Min Read
math and cattle trades
MATH AT WORK: Putting math to work with cattle trades, and succeeding, takes practice. The key is to be able to work at the speed of an auctioneer at buying time.Vectorbomb/Thinkstock

I have written in the past that I pay attention to statistics. I think we can gain insight from them. Using basketball as an example again. If a player leads the team in turnovers, and the team is down by one and has to inbound the ball under their own basket it makes no sense to me to have this player inbound the ball. Why start a play with the ball in the hands of the one most likely to turn it over?

Let’s look at two different players on a team. One is the leading scorer. This player takes more shots than any other player on the team in a game. This player also has a low shooting percentage. The second player may only score 4 points a game, but is an outstanding defensive player.

Which one of these players is more valuable? Of course, the player that scores more points gets the spotlight, and wins some recognition awards at tournaments. What if the opposing team has an outstanding player of their own and the first team’s great defensive player holds that shooter to 6 points in the game instead of the normal 17-point average? In that case there is a strong argument that the better defensive player is more valuable.

Here's the point. Situations and circumstances are going to affect how we look at these two players in terms of comparing their value to us on a team. One may seem more valuable in one game and the other more valuable in different game. The stats won’t tell that story.

I just wrapped up another sell/buy cattle marketing school this week. Many of the people that attended called me ahead of time, and shared questions or concerns they had about the material. I changed what I do in my schools a little bit to address these concerns as part of the curriculum.

I am a believer in following the math, it will keep you out of trouble. As much as we would like to believe the math removes emotion from the process that is not true. Most humans with a normally functioning mind have emotions. Controlling these emotions is huge factor. The math will help with that. Experience is a huge help. Just like when we compared the two players there were intangibles to consider, that is real life.

Doing a little cattle math

During the school I spent more time than usual on costs, calculating them in a certain way, and how it affects the price relationships between different weights of cattle. When we got to the portion of the school where we do math problems and examine some trades the math showed us what it showed us.

One thing about math is that it is fundamental, it does not change (we ignore the common core math for those who have kids and have seen that). Some of the trades we did in those problems may look good according to the math. The intangibles of real life suggest we must invoke a couple of the six mental faculties of our mind and think about if we really want to do that trade.

Here is an example. What if the math tells us we can buy weight cheaper than we can feed it on, and we are a stocker operation. We sell a light eight-weight and we can buy a heavy nine-weight for the same dollars per head (real example from an auction I watched for a bit yesterday). These are the same quality and sex. We know from experience that 10- and 11-weight cattle don’t sell well at an auction, so we are pretty much limited to taking these cattle to the terminus.

Fats are over-valued to some of these heavy feeders so it looks like a good trade. Here’s the intangible to consider, fats are only over-valued to some heavy feeders. Since the only information we have available to us is the price today, and our cost. This suggests in order to continue doing profitable trades we’d have to continue buying heavy feeders and finishing them. Remember I said in this example we were a stocker operation not a feed yard. Know and understand yourself. Also, when the animal is finished we are out of time. By turning stocker cattle, we keep time between the stock we have in our inventory and the terminus. These are the intangibles we need to take into consideration.

For cow/calf operations I show some examples of really outstanding trades according to what the math says. One is to sell a pair and buy back a different pair. The buy back is so much cheaper than the sell, that we could sell one and buy two. In this example (these were real drafts sold last June) the reason the pairs we are looking at buying back are so cheap is the cows are extremely thin. They are younger than the one’s we sold.

Question is, are they spent, or just thin? Has the owner starved them a bit? Do they have Johne’s? I do this to generate some discussion, then I tell the group about the calves. These young cows had big fleshy calves. Sick cows do not raise big poppin’ calves. So, then the question is do we still go ahead and buy these? If so, do we go ahead and do the sell one buy two deal? And if we do that, do we have enough feed to double cattle numbers? And do we have enough cash on hand to stay current with bills?

I do not do these things to make it confusing. There are other things to consider besides just doing what the math says. When I first introduced some of the psychology to the marketing schools I was laughed at by others. But by making people more aware of this they are mentally prepared to go to a sale.

We all have those two voices in our heads that tell us why we should or should not do something. Being mentally prepared we can silence those voices and make educated decisions at an auctioneer’s pace. We have all heard of and experienced buyer’s remorse. If we are not mentally prepared and the voice talks us out of buying a bargain we will experience non-buyer’s remorse, which in my opinion is worse because we are kicking ourselves for missing opportunity.

Cattle market view

This week fly-weight cattle had the highest Value of Gain (VOG). Depending on the auction you were at the VOGs you saw on cattle weighing over 500-pounds could vary widely. The only weight that didn’t fluctuate greatly was the VOG from 7 to 800#. The VOG in that part of the spectrum seemed to hold right at or slightly above Cost of Gain (COG).

This week feeder bulls were up to 25 back and unweaned cattle were up to 10 back.

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

Subscribe to receive top agriculture news
Be informed daily with these free e-newsletters

You May Also Like