The week started off by setting the clocks ahead, we had a full moon, and ended with Friday the 13th. That pretty much sums up feeder and fat markets for the week, while the female market seemed to have the silver bullets.
Eight dollars lower was pretty much the theme in feeder markets this week. The slide on feeders is a steep one. What this means is that right now this is not a weight-gain business. When I calculate the value of gain this week from over a dozen sales across the country it is lower than the cost of gain. I even found more leap frogs than usual. (A leap frog is a situation in which we can buy back a heavier animal for less dollars per head.)
This was one of those weeks where it pays to have a good network of quality people. I was doing a lot of texting this week to see what cattle were selling for at other auctions. A few hours drive made a big impact. For example, a six-weight heifer was selling for $1.30 at one auction, while just a few hours away they were $1.38. That eight cents can swing the needle a long way as far as executing a profitable buy-back.
One thing I learned from all that texting is there was a clear price difference from one end of a state to another. Some of the prices that were texted to me were really good for this market. The funny thing is how it flip-plopped from feeders to females. The parts that have stronger selling feeders have lower selling cows, and the opposite is true the other way.
With market volatility and geographical spreads taking hold it is still possible to execute profitable trades. That’s the good news. The bad news is the margins are thin. The reality is that a profit is not a profit until you have it in your hand. On a phone call earlier this week a wise rancher made the comment that we should not freeze up due to fear. If we freeze up and refuse to do anything cash flow will die off. I know people do not like to pay much attention to marketing, but right now we have to in order to make sure we have a positive cash flow.
I had a friend who drove to a sale this week and left with an empty trailer. For him this was the best thing he could’ve done in order to avoid losing money. He was at one of the stronger sales of the week. He was listening to the radio and told me of an ag economist who made the remark that the fear of what is going on in the world, and especially the markets, is having a worse effect than Covid-19. I normally do not agree with the economist types but I think that comment was spot on. While my friend didn’t get anything bought at the one sale, he did buy cattle at another. Last week I mentioned shopping around. This is what it’s going to take right now, and those with the hustler’s ambition and some discipline will reap the rewards.
It’s impossible for me to pinpoint price relationships between weights of feeders since it changed so much from place to place this week. The VOG on lightweight calves even eroded away in some places. One thing I can pin point that was the same as last week is that it is nearly impossible to replace fats with feeder steers. It is possible to make a modest profit buying back feeder heifers.
I understand that during times like these that it’s easy to get down in the dumps. I thought for sure I’d be selling some of my cattle for $1.55 right now, but I’d be happy with $1.38. We need to trust the math and, like I outlined above, remain disciplined and shop around and we can still profit. Fear requires us to believe in something unseen or that hasn’t happened to us yet. Faith requires the same thing.
The shocker was in the female market. Considering feeder prices have been down the way they have been, there is some strong optimism on the female side. The market showed us there is some appreciation value to capture by taking an open replacement and breeding her. Then even more value to capture by calving her. At two different auctions the baby calf at side added $450 of value. The value of 3- to 5-year-old cows was just slightly lower than that of a bred heifer. The next few years of a cow’s life decrease her value by almost 50%, since short solids are selling at just over the scale.
People get upset with me when I say to sell off cows in their prime. I also know they get even more upset when that spent old cow doesn’t bring much as a cull. I’ve been there when the auction manager gets that butt chewing; people love their cows. One of the first things I learned about doing a good job of marketing is to “hate your cows and love your grass.” That way you will never hesitate to sell an over-valued animal.
I’ve stated before that by selling over-valued cows we can deflect depreciation cost, and add value to the herd. I’ve had it pointed out to me that the mature cows in their prime milk more and therefore wean a heavier calf. When we look at the slide right now, that heavier calf could be worth less dollars per head than one that’s 100 pounds lighter. I can’t stress this enough: we don’t need the cow to raise a calf, we need her to produce one. I have some barn cards from this week and 610 pounds only brought $90 more than 460 pounds. That $90 has to pay for extra feed for a lactating cow, and the feed the calf consumed to gain 150 pounds.
For the price on one heifer pair, or a 3- to 5-year-old cow we can buy back two open replacement heifers and breed them, or two short solid bred cows and calve them. This is assuming you have the feed resources to double the size of the herd. We can buy time with the open heifers, but will run out of time with the older cows. Just keep that in mind.
With the open heifers you can build wealth by capturing the appreciation value. With the old cows you’ll have twice as many calves that you can sell or keep after culling the cows.
The other option is to sell the overvalued females and replace each one with one undervalued female and keep the remaining cash. That cash can be used to pay down debt or invest in something.
I know people will be upset with me once again. And I get it, bragging rights on those good cows seem like they’re worth more than money.