Two types of beef buyers at work

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Watch each Friday for Doug Ferguson's Market Intel blog on Beef Producer and BEEF magazine.
Being aware of the current dynamic offers opportunity for sell/buy marketers

Since the new year began the markets seem to be searching for equilibrium, which is not uncommon. It appears to me that this is being created by buyers having two different mindsets.

One type of buyer is focused on numbers. They must buy thousands of cattle in a time frame and are overanxious about getting them. Type, condition, quality, and even the health of the cattle do not matter to these people. They are making it a seller’s market as they keep bidding until the other guy quits. How the cattle look on paper is how the cattle should actually look, and these guys are overspending for some of the cattle they are getting.

The other type of buyer is focused more on quality and the prices paid for cattle reflect that. This is because the first type of buyer wasn’t at that auction.

This kind of dynamic makes it difficult for me to call a trend that I am seeing during the week because it creates more of a roller coaster. At one auction the heavier feeders were higher, and at the next one they were lower. This changes up the Value of Gain, and relationships between weights from one sale to the next.

With this circumstance both buyers and sellers need to pay attention to auctions in their area and communicate with the sale barn. As a buyer we need to shop around and find a good place to buy. If we do end up at a sale with one of those buyers willing to pay the same price for cattle of a certain weight no matter how they look we will probably get skunked at that sale. It is better to go home with an empty trailer than a load of overpriced cattle.

As a seller it will pay to shop around as well. Fancy cattle sell well wherever they are, but not all of us have fancy stock. Those of us who do not have fancy stock need to find out where these careless volume buyers are and sell our cattle there. It will also pay to call the stockyard and find out what weight of cattle they have the highest demand for. It will also be worth taking the time to ask what can be expected for discounts and premiums, as the price swing is getting pretty wide in some places.

Making sense of the price swing

Here is what I mean by price swing. A buddy tells me in his local area there is pretty much no discount for bawling calves. Not too far away from him there is a twelve dollar discount for bawling calves. As a seller this makes it worth it to drive an extra hour down the road to sell bawling calves.

Some markets have a ten dollar rollback on heifers while others hammered the girls with a fifty dollar rollback. Clearly we found a great place to sell steers.

At sales without the careless volume buyers feeder bulls were 5-20 back, unweaned calves were 4-12 back. The bigger the bawler the bigger the discount, which destroys the myth about needing heavier weaning weights. It’s not paying right now. Fleshy cattle were 7 back, while fancy cattle caught a 7 dollar premium and replacement quality heifers could easily catch a 13 dollar premium. With that kind of value capture do we really want to keep them and breed them ourselves? For a little more money we can buy a bred one that will give us a calf real soon.

There was one animal I saw at a couple sales this week that no one wanted, not even the careless volume buyer. It was the short-weaned cattle.

I have written about these before but this time I will be direct and try a different way to get the point across. Value-added marketing is only value added if we capture the added value. It makes no sense to put in an entire year’s worth of work and then right as we are bringing the product to market devalue it. The softest way to say this is that it is the opposite of doing smart things.

These short-weaned cattle were a little over 30% off. A seven- to ten-day wean cost the producer over $300 per head. Given what it takes to run a cow in our local area this was the difference between red ink and black ink. Let me try putting it a different way to get the point across. These people are trying to make money with a 30% death loss. We must sell something our customer wants to buy and it is clear that buyers do not want this short wean garbage.

A look at the markets

Something else stood out this week. At many sales we could sell a weaned animal and replace it with a heavier bawler and put a nice lump of cash in our pocket.

When I compare animals, I compare those that are similar to each other. Last week and this week I noticed that the animals that fall into the #1-#2 class have the greatest profit margin. If you’re in this to make money then you have to respect the entire market.

Last week I also noticed a change in the hay market that held up this week. Small square bales are finally over-valued to large rounds again. The change in relationship was dramatic, as they are now more than double the value of rounds. If you have some small squares that you can part with you can sell them and easily double the tonnage of hay on hand with the same amount of money by buying back rounds. And if you’re real ambitious you can then unroll those rounds and square bale them back up. Sell/buy marketing isn’t just for cattle, it works on anything

TAGS: Beef
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