If you’ve been following this blog it should be clear that the number one advantage in the cattle business is marketing skill. This week I want to focus on the second most important advantage some people have -- managing inventory.
Most people fail to properly identify their inventory because they think it consists of just cattle. Inventory includes feed, money and cattle. This is called the inventory triangle.
Now imagine a triangle shaped similar to a pyramid. On one point we have feed, on another money, and on the third point we have cattle. The two points on the bottom are where feed and money belong, because they are the base. Without these two we will not be in business.
Imagine if we run out of either feed or money. The triangle will be top heavy and collapse. We all know of someone who was forced to sell cattle because they ran out of either feed or money. We should never allow this to happen because we may be forced to sell cattle at a time when we don’t want to.
It is not necessary to have cattle in our inventory, like it is the other two. Custom grazers and feedlots are up to their eyeballs in the cattle business yet do not have cattle of their own in inventory, but they have a solid base of feed and money in that triangle.
For the purpose of this post I want to narrow my focus to feed that is grazed. Cattle are the harvesting mechanism converting the forage into a salable product of pounds. By properly utilizing them we harvest free energy from the sun. Better grazing management also improves water and mineral cycles, enabling us to grow more grass. I want to add an important side note here. I am still seeing effects of the 2012 drought in some neighboring pastures due to mismanagement. I am also seeing a big reduction in forage grown in neighboring pastures as a result of different management decisions. Both of these operators could be growing more grass than they are.
This brings me to an awesome point. When I met some Australians last summer they didn’t refer to feed as inventory like I was taught to. They called it a feed budget. Walt Davis uses the term “biological capital,” which means healthy and diverse populations of plants, animals and microbes with a mutually beneficial relationship between these organisms. Think about how awesome that is. When we do better managing our grazing we can make deposits of biological capital which extends our feed budget, instead of just making withdrawals.
Here’s an example of how that may look. My grazing program differs from others in my area. I use higher stock density and rotate often. Bottom line is I have more regrowth than most people had total grass. I made deposits, while all they did was withdraw. I took advantage of the market meltdown and executed a profitable sell-buy. This trade was good enough that one load paid the entire pasture rent for three loads of cattle. And in addition the cattle I bought back are lighter, and since lighter cattle eat less I am stretching my feed budget a little farther. I want to point out that I am not a superior grazing manager by any means. All this requires is a willingness to do a little better.
The cattle I bought back are already turned out on the regrowth. The thing is, they do not get to eat for free. That regrowth has some value. I could custom graze it, or bale it so I have to charge something against them for eating it (an opportunity cost), and what I charge them I get to keep, plus the profit.
That’s not all. I stretched my grazing season. Those are days I am not using my backgrounding pens, harvested feed and the daily yardage costs of delivering that feed and maintenance costs. I am stretching my feed budget on that end as well.
You see this marketing thing is more than just selling and buying stock. But I like doing that so let’s take a look at what the market was telling us this week.
I noticed a big difference in what cattle were selling for this week at different auctions. Two auctions that are a couple hours apart from each other had greatly differing prices paid for different weight classes. It pays to shop around if selling or buying.
There were constants throughout the week. Heifers are posting higher values of gain than steers through the entire weight spectrum. The other constant is that eight-weights showed the lowest value of gain.
If you sold fats this week and were buying the replacement cattle this week your ability to buy back depended on the auction where you were. At one auction you could only replace profitably with six-weight and lighter heifers, yet at the next auction you could replace with eight-weight and lighter heifers. Feeder steers are over-valued compared to fats this week.
If doing a feeder-to-feeder trade, a stocker operator could profitably buy back anything in the spectrum lighter than what was sold, on both the heifer and steer sides.
I didn’t see very many unweaned cattle this week so it put them at a disadvantage in the market. Feeder bulls carried a $10 – 30 discount. Replacement quality heifers had a $10 premium.
I didn’t see enough bred females or pairs this week to establish price relationships.