In my household there was a lot of letting go this week. Letting go is not always easy or pleasant. When I hear rumors floating around the cattle industry it sounds like there is some letting go taking place.
I had time to reflect on this topic this morning while delivering some cattle and I am going to share those thoughts.
Years ago when I started buying cattle there was always a handful of other guys there bidding on the same cattle I was. These guys were mostly backgrounders. They eventually quit coming to the sales. I never did like bidding against that much competition. Now I usually have to bid against order buyers and that makes it even tougher. I think one reason for that is the backgrounders were bidding with their own money and were more selective and conservative. I can’t say this about all order buyers but many are focused on the commission check so they bid just to get pounds on a truck. This sometimes means they will roll through their stop sign and not be as picky.
I still see some of the backgrounders who I bid against. I have asked a few why they quit coming to auctions. They tell me they have switched from owning the cattle to being a grow yard for a big feedlot.
Bud Williams said a person with a grow yard that did a good job marketing basically could print their own money. So I wondered why these guys made the decision to be a grow yard for someone else. The only logical reason I could come up with is a person is eager to sell out if they aren’t making money. If a person has a grow yard for someone else, they pretty much have a JOB and that means they are salaried. When I asked these guys how they like it, the only comment I got was that it’s a steady paycheck.
Here’s my view about that: The law of equal and opposite reaction would tell us that if you cap failure you inadvertently cap success. What I mean by that is to really make money with any kind of livestock you must own them. There have been some very profitable trades to be made lately and the people that own the cattle get to enjoy a big piece of cake. The contract growers are only getting a very small piece.
The rumor mill tells me there are going to be some mergers or acquisitions of feedlots. The big question people have is what will happen to these contracted grow yards? I can only try to imagine the feeling some may have when they think about losing the steady paycheck they depend on. If you’re the guy who gave up owning cattle for that steady check, are you going to want to go back to taking the risk of ownership again?
There are a lot of upset people in agriculture right now. I’ve heard it from the guy that fixes tires to the feed truck driver, that farmers are cranky and not fun to be around right now. I have heard that extension service and even implement dealers are paying attention and looking for warning signs pertaining to mental health, and doing what they can to help. It makes me wonder what kind of husband or father some people are being right now if that is their state of mind. I probably don’t want to know.
These thoughts even further solidified in my mind the importance of sound marketing skills. Yet very few people ever take the time to learn them. Most people view the markets as a trip to Vegas, the manic roller coaster of win-some-lose-some, and the family may be paying the price for the ride.
If I am describing you, then I want you to come out on a limb with me for a second and imagine something: What if you made a small investment of time and money and learned the marketing skills I write about. This is an investment in yourself. Imagine these skills giving you control over your business. These skills, when properly implemented generate profit, and take market risk out of the equation. You’re not at the mercy of the market. Instead you use the market. Your future is not in the hands of someone else who holds your contract, it’s in your hands. Just imagine how good your days could be! All it takes is a little initiative. You can also pass this powerful knowledge down to your kids.
Yesterday I had an awesome visit with a guy about marketing. We calculated some values of gain and I showed him a simple, quick trade that could easily make $100. All we were doing was selling and replacing with a calf 50 pounds lighter. It was awesome seeing his smile and excitement. I’m betting that kind of emotion has a positive impact on his personal life at home.
The values of gain were definitely something to be excited about again this week. In the Plains states they were mostly over $1. In the south they were in the mid 80-cent range to just a bit over $1, until the cattle weighed 700 pounds and then they dropped sharply. Southern cattle were once again under-valued.
With these values of gain there are many profitable feeder-to-feeder trades. When I was taught how to do sell-buy marketing I was told we are up to our ankles in $100 trades, up to our knees in $50 trades and up to our armpits in smaller profitable trades. Right now I’d say we’re currently up to our waist in $100 trades.
If you are selling fats, it’s not quite that good, but once again if you’re patient it's still possible to piece together a profitable trade in the Plains markets. It's much easier to replace at a profit in the southern markets, and I’m including freight and commission.
Feeder bulls were $10 back, unweaned cattle were $3-16 back, and replacement heifers brought a $5 premium.
Pairs were over-valued to breds. When I compare breds to the price of the replacement heifers the heifers are over-valued. When comparing pairs to weigh-up prices, the pairs are offering up a cheap calf. Right there’s the opportunity in the female market that I said would come.
Now, I understand cow-calf operators don’t usually like to trade cattle. We always think our cattle are the best. I’ll share this experience on that topic: Years ago I got my feeling hurt when some of the auction cattle I bought did better than the home-raised cattle. Embrace that opportunity. Plus, this makes money for the family.
The rumor mill also told me there will be some other letting go soon. Ranchers in some regions do not think they will have enough feed to make it through winter. In these places the calf run will begin soon and I’ve heard some of these sales are capped. If you think you may want to sell cattle soon you better call your sale barn to secure your spot.