Buyers of grass cattle are pushing five-weights into the overvalued category. What should you do?

Doug Ferguson

February 21, 2020

I have been seeing hints of grass fever the last couple weeks. This week I’d say we are in a full-on grass-fever market. Some of these grass-calf buyers only show up to auctions once or twice a year and they are heavily favoring the fancy blacks that are weaned.

I am sometimes asked how to determine if something is overvalued by people who do not understand the concept of price relationships. This week I noticed an easy sign to pick this up. Every auction barn has its regular buyers, and I noticed that these guys were not even bidding on a certain weight of cattle, and that weight and type was selling high. And in case you’re wondering what those cattle were, they were the fancy black weaned five-weights

Now that the five-weight has been established as king of the hill, price relationships fall into place from there. It’s easy to realize the value of gain is attractive on flyweights up till they weigh 500. There were a few spots it was still attractive up to 600, but it mostly tapered off above 500. The next bright spot for a good value of gain was from 700 to 800.

These are easy for anyone to spot. But what if you don’t have one of these easy-to-spot, overvalued weights to sell? How do you know if you should hold onto the cattle you have or go ahead and sell them anyway?

This predicament is why it pays to learn how to run a “cattle square.” The cattle square is the algebraic equation used to determine the efficient market value (the price we can pay and still replace at a profit) of replacement cattle. After you have practiced the math of the cattle square enough times it becomes subconscious to be able to spot relationships, even at an auctioneer’s pace.

This week unweaned cattle were \$6-11 back, bulls were \$11-25 back. With people favoring the fancy blacks some cattle were sold at a discount due to cosmetics. Heavy southern feeders were undervalued to heavy feeders in the plains markets

With fats at \$120 it makes it easy to spot the relationships between them and replacement feeders. With the steer market being where it is, it looks unlikely you can profitably replace with them. Due to the price rollback on heifers it makes is easy to profitably replace.

Another set of relationships that were easy to spot was in the female market. Even though replacement-quality females caught a premium again this week, there was still a lot of appreciation value to capture up to 3- to 4-year-old breds. From there on it was a steady decline in price, reflecting depreciation.

People get upset with me when I say we should sell our overvalued bred cows when they are in the prime of their life. Here’s the thing, that yearly decline in her value is an expense to the business, and it needs to be charged against the calf she is producing. Be selling the overvalued cows and keeping the undervalued replacements we can capture the appreciation value and increase the overall value of the herd.

Now that is not to say that the old cows are no good. This week I noticed they were selling just above the scale. I know what it would cost me to run these cows out, and get that last calf out of them. I could then cull the cow, and have a cheap calf. But in order for this to work we must know our costs. If you’re one of those guys whose monthly cost to keep a cow is around \$80 this will not work for you.

Another good buy was the three-in-one. This is where you buy a cow-calf pair and the cow is already bred back. These packages sold for only a couple hundred dollars over bred-cow price, giving the buyer a cheap calf at her side.

Summer calving cows sold at a huge discount to cows that are close up. The buyer can save some money, calve on grass with better weather and longer days. Sounds like a ripe deal to me.

I am going to include this last bit just to raise some awareness and give some people something to think about. This time of year, there is all kinds of hype surrounding production sales and stock shows. We all like to talk about the high sellers. Here’s the thing: Not every club calf is a winner. While it’s fun to sell a five-figure steer, there are a bunch that don’t pan out. This week I saw those club calf rejects come to town. While I realize the club calf deal is a completely different industry, the rejects get dumped into the real cattle biz. These calves sell at a heavy discount. With the added expense of breeding, feeding, labor and advertising you really need a high seller just to offset the cost of selling the rejects. When I was young, I got caught up in the hype too. Just be aware of this if the clubbie deal is something you are considering.