The hash tag #FairCattleMarkets on Twitter this week caused me to reflect back on the cattle business, and it made me think of sharing this story with you readers.
In 2015 I had some cattle in a custom yard. When the cattle were fat only one packer was bidding that week (How convenient for that packer, right?). The bid was decent, but it was only good if that buyer could purchase the entire show list. Of course one other customer turned it down and I couldn’t sell my cattle. I made a few calls and got my pen sold to the packer that bid them and even got a tad more than the original bid. The point is I took the responsibility upon myself and got things done.
For my buy-back on those fats I purchased light six-weight feeder bulls for an average purchase price of 96 cents. There were no fair cattle market rants on Twitter then. A week and a half ago I bought mid five-weight males for $1.33, and we have a Twitter rant going on. I have to wonder why.
Is it really because the packer is making so much money? In 2014 packers and retailers had to slowly raise the price of beef to keep from scaring off the consumer. They had tight margins then, and cow-calf guys had huge margins. Why do the cow calf guys feel entitled to the packer’s margins today? These things cycle. I’m not going to say things are fair or that things are right; that’s why I shared my experience of that pen of fats in 2015. I am fully aware we have laws on the books for these kinds of things. I have also seen slanted cattle deals where GIPSA stepped in and slapped a fine on some people, but no prison time. My take-away from that is that the government doesn’t care as long as they get a piece of the action. It doesn’t matter if that piece comes through fines or taxes.
We like people to do the jobs we don’t want to do. Not many of us want to be packers. So someone steps in and does it for us. Then we like to sit back and complain about the job they are doing. We have tried producer-owned packers before and the results haven’t been too super.
So what are we supposed to do? I think that goes back to the second paragraph of taking responsibility and getting them sold. I can’t help but wonder how many people took time to set up a Twitter account just for this week. Did those same people take an equal amount of time and research Ranching for Profit schools, or sell-buy cattle marketing schools? Did they take any time this week to figure out ways to reduce overhead costs, increase turnover, or add multiple streams of income? I am highly doubtful.
In 2014 we saw record high prices for bred heifers, land prices soared (and we saw a lot of it sell), and rental rates went through the roof. In 2014 I got teased a lot for driving around in a rusted pick up with hundreds of thousands of miles on it. I’m still driving that same truck, with more miles and rust. Nobody is laughing anymore. Maybe the joke got old or maybe it's because people realize I didn’t shoot myself in the foot.
I can’t help but wonder if the reason people didn’t throw fits to the magnitude of today back in 2015 was because they could ride that one out, but they throw huge fits today because the decisions made in 2014, based off temporary record prices, have come home to roost.
I was taught that expenses will rise to meet available income, and that generally holds true. However, expenses don’t decline as fast as income. Neither the packer nor the market did this to us. We did it to ourselves. We signed that high lease. We bought that new equipment. Did we save any of that cash from 2014 for a rainy day? I get that was five years ago and the rainy day fund may have run out by now. The way I see it, that was five years to plan for hard times.
I saw some pairs sell this week. It looks to me like they are under-valued compared to a cull cow. These pairs are offering us a cheap calf to wean off. I saw replacement-quality females fetch a $6 premium this week. Those are not really under- or over-valued, once we factor in cost to keep to make her a pair. So this brings in a tough question: Do we replace a cull with a pair or with a replacement heifer? To me that depends on your situation. Do you have the cash to buy the pair? If so you will generate cash flow sooner. If you don’t have the cash and you replace with the heifer there will be production lag from the time lapse of her not giving you a calf right away. With female sale season coming soon there will be better opportunities.
On the feeder side of things the value of gain looks really attractive. In the Plains states it ranged for 90 cents to $1.20 across the spectrum. In the South it was in the mid 70-cent range up to $1. Southern markets are under-valued compared to Plains markets. The cliff in value of gain drops off nearer to 1,000 pounds this week. The thing is, with the fat cattle market where it sits, it’s possible to replace at a profit. But once again it will require patience to piece them together. Profitable feeder-to-feeder trades should be easy to execute.
Unweaned cattle were $9 back and feeder bulls were $9-$18 back. We saw many more unweaned cattle in offerings this week.