Over the weekend I got a text from a friend who was at a social function with President Trump’s ag advisor, who was telling everyone within earshot that nobody is having any fun in agriculture right now. That reminded me of when former cattle marketing teacher Ann Barnhardt used to highlight profitable trades on her web page years ago, and she called those posts “Fun With Math.”
This is a good week to highlight some fun with math because one would think the deck is stacked against us. We had a holiday at the start of the week, so that cancelled sales, and the runs on Tuesday sales were light as well. This week also started the summer schedule, with many barns not having a sale. Some of the barns that did have sales held special female sales. Then there is was the lower undertone this week.
If you’ve read this blog for a while you may recall I’ve repeatedly called four-weights undervalued. If you bought them back then they should weigh 600 by now. In this first trade I am going to use $1.33 Break Profit Cost of Gain (BPCOG). I include a profit as an expense in my cost of gain because a business must make a profit to thrive.
In Kentucky a six-weight steer was $1.55 and a four-weight bull was $1.55. Time for fun with math.
- Sell 596-pound steer at $1.55 = $923.
- Buy 432-pound bull at $1.55 = $670.
- Difference is 164 pounds and $253 profit.
This trade gives us a return on the gain of $1.55. That is higher than our BPCOG of $1.33, which gives us $35 extra profit. I call it extra profit because its above and beyond the profit I already had figured in, which was $50. Therefore we made $85 total profit. How fun is that?
Maybe you sold fats last week.
With the price structure, we can assume you sold a fat steer weighing 1,400 pounds at $1.16, and replaced it with a 980-pound steer for $119.50. If we use a BPCOG with $127 profit already figured in, we still make a little extra.
The market was also paying some people to take weight home. Sell a 729-pound heifer in Missouri for $970, buy back in Oklahoma a 778-pound heifer at $116.50 for $906. You get 49 pounds and $64. That’s a cheap cost of gain.
In every crowd there has to be a party pooper. Hay prices continue to stay high and now there’s that corn rally. So I’m going to kick the BPCOG up to $1.68 using corn at $4.40, hay at $150 a bale for a 1,600-pound bale, and a $65-per-head profit.
Therefore we sell a 567-pound heifer for $149.70 and replace her with a 420-pound heifer at $143.40. That gives us a return on the gain of $1.68. No extra profit here, but still a good trade.
Here’s another neat deal: It cost roughly $75 to make a hay bale last year and we’re charging $150 now, so we are making money on hay. Some farmers told me their breakeven on corn was $3.40 and here we’re charging $4.40 for corn. making money and that enterprise as well. We have three enterprises making money. That’s my kind of party!
Cow-calf people, you are should be having fun as well. Pairs sold well this week. A first-calf heifer pair and 5-year-old pairs were selling for roughly the same money. Pairs were overvalued compared with bred females. If you really enjoy calving there’s an opportunity to profit there. And with that being said, even though bred heifers are undervalued compared with pairs, they still offer plenty of opportunity to capture some appreciation from being an open feeder heifer.
Even though there was a lower undertone this week and slim pickings, it may be hard to hide your grin from the fun-haters if you went about things in the right way.