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Cattle market literacy reigns

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Watch each Friday for Doug Ferguson's Market Intel blog on Beef Producer and BEEF magazine.
Understand price relationships and the markets begin to tell you their secrets.

A question I get asked consistently is where do I think I’d be if I hadn’t learned sell-buy marketing? The answer is, “An unemployed production welder.”

My hometown used to manufacture a lot of lawn care equipment. When the housing bubble burst and the economy tanked in 2008 people didn’t buy much lawn equipment and a lot of people here got laid off. One company even closed the door for good.

My response is not meant to be sarcastic. I really do not think I could do a good enough job marketing cattle and earning money without the knowledge I gained. I will often times refer to that knowledge as market literacy. What I mean by this is I have the ability to see price relationships between classes unfolding during an auction.

This was one of those weeks in which it was very interesting to watch those price relationships unfold.

Females varied

First, I am going to take a look at the female market. There was a geographical trend that took place. In certain parts of the country the price of bred cows tends to go up this time of year. (Keep in mind all the bred cows were fall-calving cows.) Females in the southern plains outsold females in the northern plains.

If we compare the average price of a bred heifer in the south to a five-weight heifer, we can easily capture $800 of appreciation. If we then compare the average price of a bred heifer to a cull cow there is an $85 per year depreciation cost. Here’s where the literacy thing comes in. The top-selling bred heifers brought $2,100. Compare that to the value of a cull cow and they have $145 per year depreciation expense. I wonder just what those heifers can do so special to recover that $145? With some marketing literacy the person that bought those will probably be able to trade out of them and capture some good profit sometime down the road, but he also wouldn’t have bought them to begin with.

The previous paragraph was comparing No. 1 cattle. When I compare No. 2 cattle the story changes. The value of a five-weight heifer to a bred heifer/cow, to a cull didn’t change much. That’s a good-news/bad-news deal. The bad news is there isn’t any appreciation value, the good news is there isn’t much depreciation either.

Here’s the interesting part on the No. 2s. Pairs with big calves brought a good sum. We know what the value of the open cow is, so the premium spent was on the big calf. Here’s the deal, the calf isn’t worth that much. It would’ve been cheaper to buy an open cull cow and a flyweight feeder calf. I know some people will argue with me that the pair has more value since the cow can raise the calf. It’s my opinion that we do not need the cow to raise the calf, we need her to produce the calf. There are years that we can early wean the calves and feed weight on cheaper than the cow can do it.

The other interesting thing between No. 1 and No. 2 pairs was the three-in-one packages. The No. 1s caught an average premium of $60. The No. 2s caught a $130 premium. Everyone has their way of doing things, but it’s my opinion I’d rather buy the open pairs and breed them back myself. I can do this for much less that the $130, and they’d calve when the weather is nicer.

Feeder values

The feeder market was just as interesting to watch. The value of gain (VOG) on steers was erratic throughout the weight spectrum, in the plains markets. Some weights saw a much higher VOG than others, providing an easy opportunity to earn a good profit. On the heifer side, the VOG was much more consistent throughout all weight classes. If you sold the right weight of steer this week it was easy to hit a home run with the right buy-back. But when I compared the heaviest weights sold to the lightest weights sold, the heifers had the highest value of gain at every auction I examined this week. I am not saying to buy heifers. I am just pointing out that they were more consistent. There really wasn’t a super overvalued weight on the heifer side. The erratic VOG on the steers provided opportunity to make a bigger margin, but only if you sold the more overvalued weight class.

The southern markets were undervalued compared to plains markets once again. One thing that was different in the south was that the VOG went down the heavier the cattle were.

This week unweaned cattle were $3-9 back, feeder bulls were $10-15 back and I finally saw a big group of spayed heifers sell, and they were only a few dollars under steer price.

Fats caught a little boost this week, but it is still not enough. Those of us who know how to run a cattle square quickly realize fats are undervalued to feeders in the plains markets. The cattle square tells us the only profitable buy-back to fats is in the south.

Last week I provided links to marketing schools and other resources. With market literacy it’s easy to tell what is a good sell versus a good buy. To learn more about market literacy I suggest you take some time to check them out. Here’s the one I’ll be teaching in October.

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

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