March 6, 2020
It was another strange week. Auctions that took the hardest hits last week were higher this week, and auctions that were fairly steady last week were lower this week.
I was at some of the auctions I go to regularly, and at one a ton of buyers showed up. But when the auction got underway only a few of us were willing to bid. The part that made that strange was that market was lower. I’m not sure why these guys wouldn’t bid, with some even leaving early. I can only guess that some people are now thinking they will wait it out a bit, anticipating this thing goes even lower.
I refer to that strategy as “timing the market.” I rarely see it work. This time it just might and here’s why I think so. I had lunch with some bull haulers this week, and one told me he was scheduled to haul a couple loads of fats a day for three days. All the loads got cancelled because the packer’s cooler was full and so they had to reduce the kill rate this week. With the corona-virus disrupting trade and creating a log jam of meat it seems logical this will cause a trickle-down effect.
While I’m on the topic of meat supplies, I am going to insert a rare political rant. The topic of importing beef from South America is just off-the-chart stupid to me. With corona virus, swine fever, and bird flu causing all kinds of disruptions, why risk a foot and mouth problem here? Especially at a time of log jams of beef inventory. I cannot recall a single topic where every single farm group in the country has been in agreement, except this one. Why would the smart people in Washington, D.C. ignore that kind of united front?
Right now people are wondering what is the right thing to do. Should we buy, should we sell, or just park money in the bank? While the cattle business has been through meltdowns before, I feel this one is different. A plant fire or BSE are one-time events, and they’re over. This uncrtainty due to coronavirus just continues to unfold, which creates more uncertainty. That to me is what makes this different.
I have had this discussion with several friends this week. While I do not know what the best play is, I know the best thing I can do is continue to go to auctions. I like to remind my friends, just because I’m there doesn’t mean I have to buy. Shopping is free, buying is what costs money. If I am not at an auction, I won’t be able to capitalize on a great buy, if there is one.
Even with this kind of market uncertainty, this strategy will work. Here’s why: At the start of this post I pointed out some auctions were up this week and others were down, doing the opposite of what they did the week prior. This creates changing price relationships, which create opportunity to make a profit! Even though our society is panic buying supplies at Walmart, selling off stocks, and not sure if we should be a part of the crowds at state basketball, we can still rely on these markets to make money. Does this not illustrate just how wonderful this business is? This is a testament to individual ownership of cattle, and to the free market.
Five-weights were king of the hill again this week. The value of gain is so attractive leading up to that mark. But with the five-weights being on top, it makes the value of gain beyond that weight look like a “de-value of gain.” We need to be paying attention to this very closely right now. If the VOG gets too low, we end up giving away our feed. Feed is a part of that inventory triangle I wrote about before (feed, money and livestock). If we give our feed away due to a VOG lower than the cost of gain, we gave away part of our wealth. I mentioned shopping for buying opportunities earlier; we should also be shopping for selling opportunities as well.
Currently, the quality of the animal being sold has a much bigger impact on the sell price than I can recall seeing. Anything that looks risky or too fleshy is taking a bigger hit than normal. Hard, thin, healthy cattle and healthy cattle in decent flesh are selling well.
This week I saw unweaned cattle sell $2-15 back feeder bulls were $20 back, and the bell ringer of the week were some replacement heifers that caught a $20 dollar premium.
With fats at $113, profitably replacing them with steers looks like it’s off the table. With the poor values of gain on heavier feeders, it appears heavier feeder heifers are the profitable buy-back.
I didn’t see much this week as far as bred females. The ones I saw were extremely poor quality and the price reflected that.
The opinions of the author are not necessarily those of Beef Producer or Farm Progress.
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