I’ve heard so many stories and theories this week I was tempted to begin this one with "Once upon a time…"
I like a good conspiracy theory just as much as anyone, but here’s the thing about conspiracy theories: To be good they need to resist falsification and need to be reinforced with circular reasoning of the absence of truth to disprove it, allowing it to be accepted as a matter of faith. I didn’t hear one that met that criteria. I also heard economic idealisms that failed to grasp the difference between a raw material and a finished product and how supply and demand affects each.
Almost everyone is upset by the market’s reaction to the packing plant fire. I spoke to a banker this week and he said, "This is the beginning of the end." Now, we probably all agree that no one can pick a market low like a banker can, so in times like these it pays to be contrary. Most people failed to see the abundance of opportunity this week.
Last week I couldn’t find a fat-feeder trade that worked. If you sold fats last week the market gave you the opportunity to buy back your replacements at a profit this week. If you sold fats this week the fat-feeder spread didn’t work. If you are a back-grounder/stocker operation and you sold feeders this week you can still replace at a profit and if you sold feeders last week and are buying back this week, you should be stacking up $100 bills.
I figure value of gain every week for this blog. Most of the time the value of gain on heavyweight feeders doesn’t cover the cost of gain. This week, however, the value of gain on cattle weighing over 700 pounds exceeded $2 in some places! If you are the guy holding last week’s undervalued heavy weights and you cancelled your consignment this week due to fear, you may have missed your opportunity to get rid of them and replace at a good profit, depending on if the market bounces back next week.
This week was a perfect example of how not all classes and weights of cattle drop at the same rate. Those gaps create opportunity to profit.
This week cattle under 500 pounds and over 700 pounds had a strong value of gain. Even though the value of gain didn’t cover the cost of gain in that middle ground a good trade could still be made because you could sell a calf and replace it for a few dollars per head more. This means you could buy the weight cheaper than you could feed it on.
Bred cows were lower this week as well, flattening out the cow bell curve once again. For producers in the southern half of the country it may be a toss-up if a bred cow or a replacement heifer is the better buy. In the northern half the bred cow is the better buy, the difference being the cost to keep.
This week unweaned cattle were $6-13 back and feeder bulls were $10-20 back. Southern markets are greatly undervalued to Plains states markets.