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Watch each Friday for Doug Ferguson's Market Intel blog on Beef Producer.

Optimism returning to cattle markets?

If you have a low cost structure, the markets are beginning to pay for weight gain again.

There appears to be an abundance of optimism in the cattle markets this week. With fats getting a much-needed boost it seems to have everyone feeling good all the sudden. With states lifting dine-in restrictions and allowing the start of some summer sports I think the general public is starting to feel better as well.

Here’s what has me feeling better about the whole deal. As I look at the value of gain (VOG) this week we are getting back to being a weight-gain business again. Now take that with some cautious optimism, because there are still some spots in the market where VOG is non-existent.

This week reminds me of the situation a few years ago. I can’t remember what year it was, but things were much the same as they are now as far as VOG is concerned. I remember feed prices were high and I could not pencil out a ration that would give me a cheap enough cost of gain (COG) to be able to make a profitable buy-back. The biggest factor in this was the cost of getting enough energy into the ration to get the cattle to gain around 2.5 pounds per day. I defied common knowledge and settled on a ration that would have the cattle gaining 1.25 pounds per day because that was the only way the COG would be cheap enough to enable me to execute profitable buy-backs.

This market is much the same as that. People who have figured out a way to shave costs will have no problem executing profitable buy-backs, as long as they don’t let the cattle get too big: There’s still a dangerous cliff there.

So, on the feeder side of things it’s possible to do a feeder-to-feeder trade without using a geographical spread, as long as you hit the sell-weight right and have a cheap enough COG. And just in case you missed one of those two, the geographical spreads are still there to help put dollars in your pocket.

If selling fats, it’s now possible to buy a little further down into the weight spectrum and still replace at a profit. With the fat price and the price of some heavy feeders being the same, it’s giving the feedlots a chance to finally make some good money.

This week unweaned cattle were $3-9 back, feeder bulls were $7-25 back and southern markets were under-valued.

There were a lot of female sales this week. The first-calf heifer pair is a hot ticket. I can’t believe I’m saying this but the appreciation value from a bred heifer to a heifer pair almost has me willing to pull calves. The market showed the same thing on mature cows, there was a lot of appreciation of value for having the calf at side.

Here’s how I view that. With that much appreciation value for having the calf at side the pair is over-valued. I’m doubtful the sale of that calf will recapture much of the premium paid for it.

Even though the prices varied quite a bit depending on the stage of production of the cow (bred versus pair) there was one thing that was constant all the way through: There was a near perfect $100 depreciation per year of age.

Here’s the fun part; taking advantage of the wild price spreads. If you had an old cow-calf pair, you could take advantage of the last chance to deflect depreciation and buy back the under-valued bred heifer who will quickly appreciate in value once she calves.

Here’s my closing thought for the week. I have often heard that if one segment of the cattle biz is making money, another segment has to be losing money. This is not the first time this year that I have pointed out that the cow-calf, stocker and feedlot are all making money at the very same time. I believe previous statement of conventional wisdom was based on ignorance. With some marketing skill it’s pretty easy to utilize the market to make some money, no matter which segment you are in.

The opinions of the author are not necessarily those of Beef Producer or Farm Progress.

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