There’s a lot going on in the news and I’ve listened to other market commentary this week: To make this short and to the point, I think some of those market analysts need to own some cattle, make some trades and see if they have any money left.
We’ve been hearing how much money the packers are making and that it will trickle down. I know when I sell cattle for a mint I still try to buy back my replacement cattle as cheaply as I can. I am going to do all I know how to do to stop that trickle down. We’ve also been hearing how great it’s going to be since Japan opened the gates. History tells us it wasn’t the big money maker it was forecast to be in 2004-2005.
Here’s what you haven’t been told. Feedlots are full, and the cost of gain has been much higher than expected due to the unfavorable weather for the past half a year. So I wouldn’t be expecting a rally or trickle-down anytime soon.
I know some people hate having any kind of market news, especially Cattle-On-Feed reports, because they think it’s a reason to screw up the market. While I agree that most headlines are meaningless, I also understand that a healthy market is going to move up and down. Market direction is what gives us the opportunity to profit, regardless of direction.
Let’s take a look at the market and see how that played out. As a whole, cattle under 650 pounds were lower this week, and over that weight I’d call it steady to slightly higher. The greatest value of gain is in the lighter-weight cattle greatly exceeding the cost of gain. While as they get closer to 800 pounds the value of gain drops off sharply, falling way below the cost of gain. Now that is pretty simple stuff. We can look at that and know that it's only paying to put pounds on up to a point.
Think of a funnel: All the market news swirls around the funnel and comes out at a very fine point. That fine point is called a bid. Looking back at the previous paragraph, it's really simple to see what the bids were telling us. That’s really the only information you need to make well-informed marketing decisions. There’s no need to go up into the funnel, sort through all the information there, and clutter your mind.