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

Cattle markets are upside-down world

The markets tell me one thing remains constant: We can still make a profit in the cattle business.

What a strange week. Everything is opposite. A couple months ago we received a truancy letter from my kid’s school because we were pulling her out too often to go to cattle sales. Now, with schools closed, its just a routine day.

I used to spend most of my days by myself and now I have my daughter with me all day. We used to have cattle auctions every week, and now it’s a crap shoot whether there will be an auction. And once-over-chatty cattle buyers remain dead silent during the auction. The one thing that is still the same in this backward world is that we can still make a profit in the cattle business.

I know a lot of people are upset about our current market situation. One thing I’ve learned is that circumstances are neither good or bad; it’s our thinking that makes them good or bad. I’ve heard people saying that they have more empty pens than they’ve had in years. To me this makes no sense, because the way I see it cattle are on sale right now. We sure like to sit and blame the packer and retailer right now, but we should be helping ourselves by buying cattle right now at these prices and it would sure help the seller too. When people do decide to start filling their pens it will probably be after the price goes back up. If they lose money on those cattle they need to remember not to blame anyone else but themselves for letting this buying opportunity pass by.

If you’re not planning on selling cattle any time in the near future, for example if you’re calving right now, why are you even concerned about the current market situation? Your time and energy would be better spent working on your business to reduce costs. The cheapest annual cost to keep that I’ve heard of in my area was a little over $500 per cow per year. According to university extension services, the annual cost to keep is around $700 to $1000 per cow per year. At that level just about any market would cause alarm. The guy that took the time and applied some brain power to get his costs down to $500 is easily covering his costs with a four-weight heifer in this market. (I would like to point out this producer is in his mid-20s) He spent time working on things within his control, which takes power away from the things he can’t control. He’s projecting a greater influence on his circumstances rather than just leaving it to chance.

Here’s the thing: Some people in this business do not accurately calculate their costs. They think because they own the pasture or put up their own feed they don’t have to charge anything against the cattle for that feed. If you could rent that pasture to your neighbor for $350 per pair, then that’s what you need to charge yourself. If you can put up hay for $50 per bale (land rental and haying expense) but can sell it for $70 per bale, then we must charge yourself $70 per bale.

This business is a lot more fun when we can make some money by doing a good job marketing cattle and capture a markup on our feed.

The markets caught a little bounce Thursday. With fats at $1.11 there is now a small profit to be had replacing with heavier feeder steers. We haven’t been able to do that for a few weeks.

Feeders under 500 pounds had the highest value of gain (VOG) this week. In a lot of places that VOG was around $1.50. With cattle over 600 pounds the VOG is still mostly lower than the cost of gain, signaling once again this is not a weight-gain business at the moment.

Even with that said, there remain opportunities. Once again this week there were multiple leapfrog opportunities (profitably selling lighter cattle and buying back heavier cattle). A lot of the heavy feeders are bringing about the same dollars per head. While the leapfrogs this week may not pay us to take weight home, we can easily pick up a couple hundred pounds for free. The thing to weigh out is that we save feed, but in exchange we are losing time due to the fact those heavier cattle will hit the end point sooner.

There were some attractive geographical spreads this week creating profitable opportunities. With not many cattle moving at this time a truck driver would be very grateful for the opportunity to haul them for you.

I happened to catch a female sale this week. A three-in-one pair (cow-calf pair in which the cow is bred back) was probably the best buy. A 3- to 6-year-old bred cow was the best sell. They both brought the same dollars. With the three-in-one we speed up turnover and time, since we will very soon have a calf to sell and the cow is already bred back and due to calve late summer. Whereas with the bred cow, we still have to calve her and get her bred back, both which have some risk, and then it will be a while before we sell her calf.

I want to mention that in these uncertain times sale barns are doing all they can to serve their customers. I’ve been on the phone with more sale barns this week than ever before. They are communicating with both buyers and sellers. It’s a tough call to make. If they cancel a sale they don’t make any money, and they risk losing a seller if he decides to go ahead and sell because he has to go somewhere else. If they do have a sale and only check in 100 head, they still aren’t making any money. Whatever they decide to do someone will be upset with them. Just understand they are trying to make something positive happen. And that’s really all you can ask is that they try.

With sale cancellations, consignors backing out at the last minute, short runs and lousy prices, it’s very easy to get discouraged right now. As I watched the price relationships develop this week it was clear that this is still a great business to be in. We can still squeak out a profit, while other people are getting laid off. And those of us who find ourselves in a home-school situation, we have a bigger classroom and more resources that the rest of the population doesn’t have. That’s pretty rich.

Nothing is good or bad. It’s our thinking that makes it so.

Doug Ferguson practices sell-buy cattle marketing, operates a grazing operation and a small backgrounding yard at his home near Beatrice, Neb. Where other market analysts only tell you what the market is doing, Ferguson tells you how to make money using real examples in the current market.

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

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