I saw a forecast this week that fat cattle will be $1.15 by year's end. On this blog the definition of forecasting is betting on the come. I also overheard other cattle buyers grumbling about how much money they have lost betting on Husker football. This is the problem with forecasting/betting, we usually lose.
We need to look at the one constant variable that has the correct information and that is the numbers. The numbers I am talking about are the ones that cattle actually sell for. These numbers do not care what race or gender you are, or if you joined R-CALF or NCBA. They don’t care if you’re a beginning cattleman or a seasoned vet that’s going broke. They just give correct and perfect information.
Robert Kiyosaki writes about financial literacy in his books. To interpret the markets we need to have marketing literacy. The first thing to realize is there is "the market" and then there’s "your market." Your market will be different due to many variables. Your cost to keep or cost of gain will be a big influence on your market.
This week as I look at the market in the Plains states the value of gain is over $1 on most weights until the cattle weigh 800 pounds. That is the market. If your cost of gain is 60 cents and your neighbor’s is $1.10, each of your markets will be greatly different. There will be a lot more cattle in the offering that you can buy back at a profit than what your neighbor will be able to buy back at a profit. This is why we shouldn’t be too concerned with what our neighbor is doing, unless you’re the neighbor with the $1.10 cost of gain: Then you may want to investigate why your neighbor has an advantage over you.
This week I saw some extremely overvalued nine-weight steers. If the buyer sold fats last week in the cash market the return on the gain was only 12 cents on that trade. There is no way he made money on that buy-back unless his cost of gain is considerably less than 12 cents. What I don’t know is what he actually sold fats for, and that could change his market. The thing is, I highly doubt he got a great “sweetheart deal” that gave him that kind of advantage, so I think he is disqualified from complaining about unfair markets and blaming the packer. While the markets are still giving us great opportunities to make some profits, they are also giving us opportunities to shoot ourselves in the foot.
Now, the guy that sold those nine-weight steers could’ve bought back five-weight steers at the same auction and had a return on the gain of more than $1.33. It’s a safe bet that his cost of gain on those nine-weights was well below that, so in his market he could easily make a handsome profit with those five-weights as a replacement buy. A feedlot that sold fats last week could not buy back those five-weight steers unless they had a break-profit cost of gain of 75 cents, and even if he did the stocker operator that sold the nine-weights could easily outbid him.
That is the difference between "the market" and "your market." This is why we need to have marketing literacy and the skills to read what the numbers are telling us. There is profit potential in the cattle markets every day due to price relationships, but we have to be able to see the difference between those relationships.
These relationships are not exclusive to feeders and fats, there are relationships between classes of breeding stock. This week there were very few females in the offerings I saw. One example I did see was 4-year-old pairs that sold at $1,400. These were big, fat cows that were easily worth near $1,000 as weigh-ups, and the big calves are worth almost $600. Another relationship is that a five weight replacement heifer was worth $775 on that same sale. Can you turn a $775 dollar replacement heifer into a pair for under $1,400? Some of you probably can, most can’t so there is the difference once again between the market and your market.
When we learn how to interpret the numbers, things like trade wars, bull or bear markets, what the packer is doing, what association is teaming up with another association, and things of that nature won’t matter. Take my word for it, when you eliminate those distractions from your mind life is much less stressful. And if you still choose to be involved in those things it would still be less stressful if you were utilizing the market and making profits.
I mentioned already the value of gain in the Plains states. In the South it varied from the mid 70-cent range to $1 on cattle weighing up to 600 pounds. From there is dropped sharply. Southern markets remained undervalued to Plains markets.
I saw many big strings of bawling calves this week, so they didn’t really carry a discount of any kind. The quality was outstanding. Feeder bulls were $6-30 back. A question to ask yourself is if it’s really worth it to reach under one for 6 bucks.