Its Friday the 13th and the way things were this week both your pencil and your mind better be as sharp as Freddy Krueger’s blades.
I knew it was going to be one of those weeks I had to chase off the boogie man when my wife showed me a meme on her phone Monday night that pertained to the cattle markets. Well, kind of… In that meme it compared the price paid for live cattle on certain dates with the price of boxed beef those same weeks, along with the price of beef at the retail level. The meme labeled the situation as stealing. It stated there was a $2,000 margin for packers and retailers
Both those segments have costs to cover themselves. I’ve heard once that half the cost of production of beef is after the critter arrives at the packing plant. Unless you are selling frozen packages of cow parts you are not selling beef, you are selling cattle. So, it makes sense to me to get the whole deal of retail prices out of your head. It has nothing to do with you.
Instead, place your time and energy on the things you can control like your marketing, reducing costs and running your business in a profitable manner.
Here’s the other thing from my point of view, packers are not stealing cattle. At some point there was a negotiation and the owner loaded them on a truck and shipped them in trade for money. That doesn’t fit the definition of stealing. I can think of a handful of other words that fit that scenario but stealing is not one of them.
In that meme it compared prices paid in 2014 to 2019, but it made the wrong comparison -- for dramatic effect, no doubt.
Instead, let’s look at it in a way that does affect us. For learning purposes I went back and looked up the prices paid for feeder cattle the same weeks the meme priced fat cattle. I compared to it five- and eight-weight steers.
On March 17, 2014, it showed a fat at $1.50. A five-weight in Nebraska was $2.34 that same week. This gives us a 98-cent return on the gain. On Sept. 20, 2014, fats were $1.55 and a five-weight steer was $2.97, giving us a 72-cent return on the gain. (Feedlots bid away some of their profit). On Aug. 23, 2019, fats were $1.08 and a five-weight was $1.63, giving us a return on the gain of 75 cents.
There’s a lot of number there, so I’ll summarize it this way: March 2014 feeders had a return on the gain of 98 cents. September 2014 feeders had a return on the gain of 72 cents. In August 2019 feeders had a return on the gain of 75 cents.
Again, when you want dramatic effect I guess you compare beef price to cattle price. However, when you compare cattle price to cattle price you can see that in August 2019 cattle feeders are doing better than in September 2014. Also, corn price was higher in 2014 so the cost of gain would have been higher then. When the return on the gain is higher than the cost of gain we are making money. The margin is better today than five years ago.
The reason horror films work so well is because they excite and invoke our imagination. One of the best lessons I’ve learned is not to create drama for myself. When it comes to the markets, I stifle my imagination and focus on the math. Sharing ridiculous memes like the one my wife showed me that won’t help reduce drama.
In case you’re wondering how the eight-weights turned out, they were overvalued to fats. The only difference is that in 2019 they lost less money as a replacement buy.
If you are a feeder or stocker operator absolute price direction is not a big deal. As you can see, the margins are better today. The prices being paid for calves will have an effect on the cow/calf operator.
So, what are cow-calf people to do? Well, as I mentioned, posting angry memes on your Facebook page will not accomplish anything positive. Further, complaining about the markets will do as much good as complaining about the weather. So, my question is how much time have you cow-calf producers set aside this year to calculate your gross margin and figure out a way to improve it? What unnecessary costs have you cut from your program? Are you getting your ranch in synch with nature and raising cattle that fit your environment, or are you raising cattle bred for the feeder and packer that you’re so mad at right now.
I remember after the high calf prices in 2014, I saw a lot of cow-calf guys bringing their cull cows to town in 2015 behind brand new pickups. Then in the fall of 2015 when calf prices fell they were mad as heck that they couldn’t make their payments because they didn’t get enough for their calves.
I don’t live in the past. It’s done and over with, so move on. We can’t predict the future so no use wasting energy on that. We live in and must deal with the present, so let’s look at what the market is telling us now.
This week you really had to pay attention and keep your pencil sharp. Things really shook up quite a bit. In the Great Plains states the value of gain was higher on heifers. In southern states value of gain was higher on steers. In Nebraska the value of gain was double the value of gain in Kansas on steers weighing between 600 and 700 pounds. Just 150 miles changed the value of a four-weight steer by $100 per head. That $100 makes a big difference between undervalued or overvalued.
It pays to go shopping right now. The best thing a buyer could do at one sale is go home with an empty trailer, then turn around and fill that trailer at a different sale. If you’re looking to sell cattle it is well worth a little extra freight to haul them to a better market, so be shopping around. With these price fluctuations profit potential is being exposed in places and covered up in others, between weight classes and geographically. Be patient and be alert.
Feeder bulls were $7-30 back, and unweaned cattle were $10 back.
I didn’t see any breds, pairs, or replacement quality females this week to make any comparisons.