When I was a little kid I was helping my dad in the shop one day. He gave me the task of screwing a bolt in. I could not get it to thread in and was beginning to throw a fit. He looked over and saw I was turning it the wrong way. He said, “If something doesn’t work one way, try doing it a different way.” That may be the best advice he ever gave me, because it applies to anything in life on a daily basis.
This next part is not meant to run anybody down, but when you do or say things in public it is fair game. This cattle buyer was on the phone telling his buddy, and everyone else in the sale barn, how he’s losing $300 per head right now. After he gets off the phone he buys some eight-weight steers: He just bought his next losers. Maybe he should try doing something different. Maybe he should try marketing cattle on a real-time cash flow reckoning.
That is what sell-buy marketing is. Calculating the cash flow, or loss in this case, in real time. People using the buy-sell method are waiting, hoping and praying for the fat market to get to $120 so they can break even, or bail them out of their mess. Funny thing is, the market has a way of letting those people down, consistently. All a rising market does is show us how many people can make money based on dumb luck. It’s as if some people say, “I don’t have to go to Vegas, I gamble every day the market’s open.”
With sell-buy marketing we can see relationships between weights and classes of cattle in real time. We can also gauge the value of money to cattle. We may see more use value in an animal, so we sell our money into the market to buy that animal. This market literacy allows us to go with the flow of the market instead of fighting it the way the other guys do. While they are trying to swim upstream, we are floating down steam on an innertube taking what the market gives us. And the market will provide. Sometimes it gives a lot and sometimes it gives a little. All we have to do is pay attention to what it’s telling us and then go make it happen.
With our marketing school coming up next week I found myself wishing the students that are coming were with me this week at a local auction. The relationships were wild, and would have been an easy teaching tool.
Hereare a couple examples. A four-weight bull, right off the cow, brought the same dollars per head a five-weight steer right off the cow. The buyer of the four-weight has the expense/labor of castrating and feeding on 100 pounds to basically end up in the same place. Now of course a weaned five-weight steer will be worth more, but not enough to cover the expenses of getting him there. There is no value of gain (VOG) here.
The second example is that four- and five-weight heifers brought the same dollar per pound. So we had two bidders thought it was worth paying double the cost of gain (COG) to have that 100 pounds today. This set up a huge VOG on those four-weight heifers.
This week fly-weight males and seven-weights had a lot of friends. In the plains markets the VOG will easily cover the COG, up to around 900#. There is a cliff there where the VOG drops off. If we are floating downstream on our innertube, feeder to feeder trades are offering opportunities to profit.
One of these big opportunities is buying bawling calves. The discounts were $4-16 again this week. Many order buyers can’t get a calf order right now. The small farmer feeder and backgrounder types don’t even have much interest in them right now either. They all agree the market will go down.
Here’s what I am seeing and hearing. People want the market to go up $15 so they can get breakeven on their fats, so they hold, wait and wish. At the same time the same people are holding and waiting and wishing for feeders to go down. This is just plain greed, and it’s hurting them.
In the marketing school coming up I made a slide that illustrates how holding and waiting wastes opportunities and kills cash flow, sometimes even creating a big hole we have to climb out of.
Will waiting work for you?
About this waiting for the market to go down: I realize it’s October and there’s usually a dip. The election is starting to cause some anxiety. The thing is, the market has been creeping up the last few weeks. If we had just bought those bawlers a few weeks ago they’d be weaned out by now, gaining weight and doing awesome. The people that bought them captured the value of time. And with so many people waiting, guess what, you all will be bidding against each other at the same time, when the other guys will be done. So will the market really go down?
Back to the markets. Feeder bulls tended to carry a $5-26 dollar discount. Fats appear to have gotten a little bump again. Problem is there isn’t much opportunity to buy back in the plains. In the south, the best buy-back against fats is heifers.
The southern markets didn’t show VOG anywhere near what the plains markets did, and as I pointed out above the heifers are way undervalued there.
An auction in Nebraska had some Non-Hormone Treated Cattle (NHTC) caught a $22 premium. As I have pointed out several times, that value added only becomes value added if you capture it. There it is! That’s what it looks like.
The opinions of this author are not necessarily those of Beef Producer or Farm Progress.