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Forecasting market prices and weather: It's everyone's guess

Some get paid to guess wrong... Don't be one of those, form price relationships.

Doug Ferguson

July 8, 2022

4 Min Read
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Last weekend the weather forecast here was one that suggested making hay.  Some people went and mowed some, and it has been rained on several times.  We’ve even been in flash flood watches this week.

Now check out this quote from a market forecaster from this week “forecasts have been modified by the way the first half of the year has played out, with implications for a significantly different second half of the year.”  That is some fancy wordsmithing right there, just to say “Our guess was wrong.”

One thing about the past six months is there were opportunities every week to make some money with cattle, as long as we didn’t abandon marketing fundamentals.That’s the thing about sell/buy marketing, we rely solely on these fundamentals using only real time market information. We only use real time information because we live in the present. The past is over with and we can’t go back and change it. The future is unknown and as the paid guessers above illustrate, no matter what your degree or how much information you have, your guess is likely to be wrong.

The main difference between the paid guessers and those of us who own cattle is this, guessing games is their job. Whether they are right or wrong they still get paid.  If we play guessing games we are abandoning the basic fundamentals of marketing and we are likely to lose money. And unlike them we can’t simply wordsmith it away.

Yet we are fascinated with the guesses these people put out.  Another thing we are fascinated with is market topping cattle.This week I was in the process of putting together the book for my upcoming marketing school (which is sold out by the way). 

In there I have an example from a sale in NE. where seven weight steers sold for over two dollars. We replaced them at the same sale with five weight steers. I gave this problem an artificially low Cost of Gain (COG) and it still was a money losing trade.  Point is, it is not the absolute price that matters.  It is the fundamental of utilizing price relationships that does. 

In contrast I have an example from a KY auction this week where we traded some feeder heifers. There is a huge price difference between the NE steers and the KY heifers. I also gave the KY heifers an artificially high COG and the swap still makes over $100 per head. The absolute sell price, nor the COG are what matter, it is the skill set of the marketer and his ability to remain disciplined and use fundamentals and utilize the market that matter. A higher selling price and a low COG certainly help, but the requirement is marketing skill.

There is another guessing game we are fascinated with and that is the 10 year calculator, which is the philosophy that a heifer has ten years to pay for herself. There is a lot that can go wrong in ten years.  She could die, she may not even breed, she may lose a calf, and on and on. We are also guessing that the market will pay us more than it costs for her to produce those calves. That is a lot to hold together and it just doesn’t work.

After watching some female sales this week I could see relationships develop. If someone sold the old pair and replaced with a heifer pair, using the 10- year philosophy, it was a big money loser. Yet at the same sale we could sell the mature pair and replace with younger pairs and accomplish several things. 

One: we generated positive cash flow, and a lot of it.  We could sell value into the market and get paid more than it was worth. 

Two: we could improve the balance sheet by generating cash flow and buying back a female with more value than the one we sold. 

Third: we swapped the older female for a younger one giving us a more desirable female to sell in the future. 

Four: we bring in animals that will do a better job capturing the value of our grass.

Now we’ve touched on the four points of our inventory: time, money, feed, and livestock.

This is only possible with market literacy and executing the fundamentals of sound marketing. There is much more money to be made right now swapping some cows than there is in selling one calf a year from a cow. 

Mark your calendars for Husker Harvest Days this year. I will be out there speaking about the fundamentals of sell/buy marketing and I will highlight some possible current trades that could be made.  I am going to do what the forecasters can’t: Show you the money.

This week the Value of Gain (VOG) remained strong. Some VOG even reached over $2.  It is definitely a weight gain business. There is one thing to be aware of however, there is a cliff around nine hundred pounds.Then from there it paying to finish cattle out, assuming we’re not buying the over-priced feeder steers in NE.

Load lots once again caught a premium, and multiple load lots caught an even bigger premium. Feeder bulls were 35 back. Some high yielding weigh cows sold for over a dollar. Geographical spreads widened out a bit more this week, making those kind of trades really awesome.

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

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