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Cattle versus the Dow-Jones

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Watch each Friday for Doug Ferguson's Market Intel blog on Beef Producer and BEEF magazine.
Markets this week reduced value of gain and female sales showed some definite preferences.

Tuesday I was driving home from an auction listening to the radio when I heard the Dow-Jones average broke 30,000 points for the first time ever. This got me curious to compare my plan on saving for my daughter’s education to a more conventional way. Some of you already know when she was born I went and bought her some flyweight heifers and have been trading for the last nine years building up her numbers. I have nicknamed this the “Cattle 529 plan.”

The original group cost me a little over $3,000. I traded these five head for a while, taking the profits out to repay the loan I gave her. After I got my original money out I started reinvesting the profits into expanding the numbers. With the conventional savings plans in which parents invest every month, they don’t get that investment money back.

Whether with conventional methods of saving or my way there is a snowball effect. Conventionally there is compound interest, and using my way we reinvest profits to buy more cattle. The big difference is when the Dow tanks, that investment loses value that will have to be regained when the market goes back up. When trading feeder cattle we trade based off relationships between weights. This year was a great example of doing that, because some of our best trades were done on market lows, allowing us to expand her numbers in a big way. In full disclosure I did sign her up for CFAP money and invested that into buying more cattle for her. That is an advantage the Cattle 529 plan had that the conventional way didn’t.

So here’s how the two compare. If I’d taken the original money and invested the conventional way, without adding any more money to it, the value would be $15,500 today. The value of cattle she has in inventory is $38,000. Remember we took the original money out, and have only reinvested profits so the cattle deal has a much better snowball effect.

The other advantage the Cattle 529 plan has is that we are running this like a business. She pays me feed and yardage. She takes the hit of death loss and things like that. She is learning marketing and stockmanship skills too. She gets the advantage of real-life skills this way

I think it’s pretty clear this week I am thankful for the cattle biz, and thankful that Bud Williams bothered to take the time and put in the effort to teach us how to do sell-buy marketing.

This week I noticed on market reports that some sales were higher this week. The auctions I went to were lower. Most of that was due to who was not there. That’s a big testament to how easily one person can affect a market.

The VOG on steers leveled off this week, and the heifer side stayed fairly steady. The market is paying us to put weight on cattle, it’s just not willing to pay a lot right now. Last week flyweights were in high demand. This week they were not: They fell in line with everything else.

Lightweight heifers are still seeing a huge roll-back, and that roll-back narrows as they get heavier. I thought for certain this would give them a huge advantage in value of gain (VOG) over steers, but when I checked the math I was surprised to see they are dead even. (I compared the VOG from 300 to 800 pounds.)

Buyers are still zeroing in on certain weights, but the weights they are targeting vary across the country. By calculating the VOG it’s easy to spot. In case you do not know how to do that, I’ll give you a quick example how to spot it while at an auction. One sale I was at this week an eight-weight steer brought the same price per pound as a six-weight steer.

This week feeder bulls were $20-25 back and southern markets were greatly undervalued once again.

Unweaned cattle were $6-9 back this week. I’m putting weaning in a separate paragraph this week because I want to make a point on this short-wean garbage again. This week I saw short wean cattle $5-13 back from bawling calves. These people may think they are adding value, or giving buyers what they want. Thing is, it’s a mess and the signal was clear this week, buyers are tired of dealing with them.

I did manage to catch a female sale this week. We reconfirmed a few things there. AI-bred heifers and fat females are in demand. Heifers also had to weigh over 1,050 pounds, or they lost the interest of dominant buyers.

There is some appreciation value to capture in breeding an open heifer, if you’re a least-cost producer. The bred heifer is the top of the bell curve right now, and then she loses $100 of value per year after that. Depreciation takes a huge bite out of females between short solid and broken mouth. Those teeth can cost $500.

Females that were due to calve after March 15 were considered late calvers, and sold just a bit over the scale to $200 back from other cows the same age.

For the most part, pairs fell in line with the bred cows. I figure the cost of the bred cow, plus her cost to carry until she has her calf, and pairs brought just a little more than that.

Pairs with big calves brought a premium. A lot of emphasis seemed to be placed on that calf. These big calves were weighed separately, so it’s easy for me to assign a value to them. The calves are not worth what they added to the pair, so the way I see it we have a really expensive open cow we need to get bred back, and run out for almost a year before she calves again.

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

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