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

Are cow-calf pairs selling too high?

Remember everything matters: Feed, money and cattle all make or break your profits.

It’s getting dry in my area. It’s hard to believe that a year ago we were flooded. This dry spell we are in really brings people’s perceptions to the surface. Some people are buying hay just to get through the next week, some are buying it to build up a reserve, and some were buying cow-calf pairs.

I was not surprised to see the buyer interest in hay. The prices paid for pairs did surprise me, but maybe those pairs are leaving the area. I guess this is where perception kicks in. I cannot figure out feeding $90-per-ton hay to a $1,900 pair that will wean off a $600-800 calf. I can pencil it out feeding it to a fly-weight calf, since the value of gain (VOG) suggests he is appreciating in value. So can we feed our way out of a drought? I guess that all depends.

Managing our feed is part of managing our inventory triangle. I do not have a problem with buying hay, since it has a shelf life. We can either feed it or resell it. I do have an issue with poor grazing management. We were part of that bad drought in 2012. Some guys left their cattle out on pasture into fall. In order to do this they had to haul hay to those pastures. Even though we have had some extremely wet spells since then, the management decisions in 2012 still show through. Their grass is always short and today they have more weeds.

Management triangle

Imagine a triangle, if you will. Feed and money are on the bottom and cattle go on the top. The reason is money and feed are the foundation. If we don’t manage these properly the foundation crumbles and the rest falls in. We’ve seen this before when things get dry; people spend money to buy feed. They eventually run out of money, then they run out of feed and then they are forced to sell cattle, and usually at a time when the markets are depressed. Then they have nothing. This can easily be avoided by managing the inventory triangle better.

There are people more qualified than me to talk about grazing management, but here’s something to think about. the first year I really implemented a rotational grazing system was 2012. The rest periods coupled with the few small showers we got did wonders for my grass. I managed to get through that year okay, and my pastures recovered quickly. Like I mentioned earlier some of my neighbors have not yet recovered from that drought. Some people think it’s too much work or takes too much time to string polywire. I am now convinced it may possibly be the most important work I do during the grazing season. I really like the term Walt Davis has come up with -- “biological capital.” Something we need to focus on more is building that kind of wealth, building that solid foundation.

Stimulus or bail-out?

Another topic of discussion is what I am calling the “cattle bailout.” Some people are really excited about how much money they are going to receive. People in agriculture love to play the tax-deduction game and similar. All I’m going to say here is be cautious how you spend it. Don’t be that guy complaining that it’s impossible to make money in the cattle biz for this reason or that reason, when at the same time you have a new toy in the parking lot. Remember money is a part of the solid foundation.

Last week I was getting optimistic that we were getting back to being a weight-gain business. This week the market didn’t signal that. The VOG drops off again over 600 pounds. The good news is that for the second week in a row slaughter numbers are higher. Fat cattle got another nice boost this week. It’s a good time to be selling fats. With the price of fat cattle being higher than, or close to the price of heavy feeders, it’s easy to make a profit when replacing. So they are in the weight gain business again.

This week unweaned cattle were $3-8 back, feeder bulls were $7-15 back, and replacement quality heifers caught a $7-14 premium. Southern markets this week were what I call spotty, meaning that some weights were overvalued compared to plains markets (after price is adjusted for freight), and some were undervalued.

No trickle

Final thought this week: There is this myth in the cattle biz that there is a trickle down, meaning that if the packer makes money they will bid more on fats, then the feedyards will bid more on feeders. I think everyone has learned this is not true. Packers have been making some good money and hanging on to it. Feedlots are finally getting paid well but as I pointed out above, they are hanging on to it since heavy feeders are bringing equal or fewer dollars per pound.

The point here is the trickle-down myth is just false. It may happen sometimes but it doesn’t have to happen. Just because one segment is making money doesn’t mean they owe another segment. It is up to us to make sure we get our share when we market. Now here’s some good news. With bail out money coming one thing you can be sure of is that some people will be careless with it. The question is, who is going to be willing to trade with these folks and get some of that money?

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