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Cattle markets yawn at China deal

Regional market price gaps seemed to narrow this week, and heavy cattle carry strong value of gain.

This week markets were mixed: One auction was a few dollars higher and 60 miles down the road that auction was a few dollars lower. Regardless of market directions this week there were plenty of opportunities to make a profit.

I was a bit surprised to see some lower markets only because there has been so much talk for so long how we need a trade deal with China. So, when the phase one deal was signed I really expected to see the beginning of an emotionally charged rally.

Since I’ve mentioned emotionally charged markets, I want to touch on that. Our most recent one was after the fire that caused our markets to drop. Many people were too focused on absolute price and they missed the contrast in price relationships, missing an opportunity to profit. I mentioned on this blog a tweet I saw a few months back. It said, “Can you imagine complaining about a market meltdown and not buying cattle?” People who did buy cattle at that time are now selling them for the same or even more dollars per hundred than they bought them for.

Normally, the fear of a loss is greater than the anticipation of a gain. By being able to advance cattle now (advance meaning selling them for more dollars per hundred than you paid for them), together the China news, I am guessing we will see the emotion of greed kick in. Do not get caught up in this. Just follow the simple math to determine the efficient market value for cattle you are buying. The math we use to do sell-buy marketing doesn’t care about emotions or what’s in the news. It will simply tell you what’s overvalued or undervalued to other what else.

If the math tells you that the price being paid for a certain weight of cattle is overvalued and you have those cattle in inventory, then you should simply sell them. I can’t even guess at how many times I’ve seen a weight of cattle sell at a high price only to overhear people start bragging about how many of those they have at home. I wouldn’t brag because if you don’t sell them at that price, you just bought them at that price, even though they are already in your inventory. It’s an opportunity cost.

The markets exist to make us profitable and allow us to trade with each other. If something is overvalued and you have it in inventory, sell it. By properly utilizing the market in this manner you’ll be helping someone else by selling them what they want. You can then further utilize the market by buying back something the market doesn’t want at the time, something undervalued, helping that seller. Just look how beneficial your existence can be to others by doing these things, and you’ll be getting paid to do it!

This week in the Plains markets cattle over 700 pounds had the highest values of gain. Value of gain fell off a bit in the middle weights, 500-700 pounds. Flyweight cattle had some respectable values of gain. In the South, value of gain increased as the weights increased. I would not call southern markets undervalued this week. By the time you pay freight and commission to get the cattle delivered, you only save a few dollars. In my opinion that’s not a good enough buy to deal with long-haul, stressed cattle.

Lightweight heifers were $25 to $40 back from steers. That rollback narrows to near $10 when the cattle weigh over 700 pounds. You really shouldn’t need a calculator to figure out that by taking advantage of this rollback you’ll be capturing a better return on the gain with females right now.

This week unweaned cattle were $5-20 back, three-weight to five-weight bulls were $5-20 back, bulls 700 pounds and bigger were $20-30 back. Thin cattle caught a $10 dollar premium, while fleshy cattle were $6 back.

I didn’t see any special bred-female sales this week. I did see quite a few breds sell at regular weekly auctions. Most of these cows were mature, being short solids to broken, and only brought a little over weigh cow price. That should help deflect depreciation expense.

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