My wife was showing me comments to a marketing article on Facebook yesterday. I’m not sure if she was trying to get my blood pressure up or give me fodder for this blog. The thing is, I get to choose how I respond, so I’m using it for fodder.
There were some nasty comments made on that page, but the one that stuck out to me is that the "the price for cattle is the most important aspect of making a profit, not cutting expenses." Here’s a little sidebar for any young people reading this: I am so glad social media wasn’t invented yet when I was young because if I had read some of the things people post and believed it, which I might have, I’d be a broke failure and mad at the world just like the "expert" I’m taking a jab at.
The "expert" was upset at the article for using 2014 prices, stating "anyone could make a profit at those prices." Well, not everyone did because expenses have a way of rising to meet available income, if we let them. So I decided I’d use something current; this happened in the last two days.
This week I sold some cattle. I didn’t get the price I was expecting and that was disappointing. I knew at that moment my buy-back wasn’t going to go the way I had expected and the big amount of excess profit wasn’t going to be achievable. So once again this week I found myself having to choose how I was going to respond. Do I get all upset and raise hell on social media, or do I go to an auction and execute a profitable buy-back? Like that’s even a serious question.
I will not argue that the price you get is important, because it is. The price we pay for replacements is more important, right along with the expenses of running our operation. If you are a cow-calf guy the price of replacements is what it cost you to produce the next calf, so in that case managing and keeping costs down is extremely important. This is the key to helping you survive these market downturns.
If you think the price you receive as a price taker is the most important thing, then you will always be at the mercy of the market ... and like I’ve said before, the market will let you down.
Since I’m hoping the young people are reading this week I want to cover two things for you: The power of money turnover, and marketing skill.
This spring I was buying four-weight heifers. One week a guy showed up at the sale barn and ran those heifers up too high for me to buy. The next week he ran them even higher. I remember thinking to myself "Good luck, buddy." He backgrounded those calves and sold them a few weeks ago. Since I back-ground a bunch myself I have a good idea of what his cost of gain was. Without any death loss I guess he made $30-60 per head. This is figured on buy-sell marketing, meaning you buy a calf, put some feed and time in it and then "hope" to get more out of it than what you have in it. Like the guy I mentioned above, the price you get becomes the most important thing.
The four-weight heifers I bought at the same time were sold months ago. I do sell-buy marketing, where I make my profit on the buy-back which gives me the control, not the market. I sold those heifers and made a $100 profit. Then, some of the cattle I replaced with are the ones I sold this week, which had only $40 profit when I replaced them.
So because I was able to turn over more cattle, in the same amount of time I made roughly three times the amount of profit due to better marketing and that higher turnover.
Here’s the take-home point for you beginners. In the county where I live you have to own 3.2 acres to have an acreage to put a house on. Pretend you do that, and on that acreage you put in a pen that will hold 100 head. If you sell and buy back 25 head every month, or market the whole 100 head every four months, you will have some really good turnover. If you only make $50 per head, and assuming no death loss, you make $15,000 a year. (You could do better, but this is realistic.) With only 100 head you still have your off-farm job. What would that income do for you?
In the markets this week, the female market changed. If you read this blog, please understand all I can do is report on what I saw the past week, it is by no means a prediction of the week to come, or to tell you all what to do next week. You’ll see what I mean.
Last week bred cattle were over-valued to pairs. This week pairs were over-valued to breds. To the comment above this is why we need to know our costs. This week when I compare the price of pairs to the price of breds, I can’t buy the pair with a 45-day-old calf for what I could buy the bred for and have a 6-week-old calf for in a couple months. Last week it was opposite. This is why I stress knowing your costs and understanding price relationships.
Lightweight steers are in demand, eroding their value of gain a bit. With the price rollback between them and heifers it makes the heifer a better buy. Especially since this roll back really gives the heifers an advantage as far as value of gain. The heavier cattle showed the highest values of gain this week. Depending on the market you were at the value of gains begin to soften a bit at 800 to 900 pounds.
Unweaned cattle were $5-14 back, feeder bulls were $9-14 back. I did see some NHTC (Non-Hormone Treated Cattle) bring a $15 premium! A friend called me to tell me he saw some short-weaned cattle in his area that were almost $20 back. Southern cattle remained greatly under-valued once again this week.
I didn’t even bother to pay any attention to the fat market this week. Looking at the prices being paid for feeders I know it would take a huge boost in fat price to make an attractive trade.