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Weigh your product’s profitability

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Watch each Friday for Doug Ferguson's Market Intel blog on Beef Producer.
Value of gain continues to be a watch point as it varies greatly.

For years I thought the phrase “reputation cattle” was just something an auctioneer said to make a consignor feel good. I can now tell you it is a real thing. We all have a reputation that extends to our cattle. Question is, what is your reputation?

Reputation works several ways. There are some cattle that have a high reputation and we all know they’ll catch a little more at sale time. There are other cattle that have a low reputation and buyers take the opportunity to refill their coffee while those cattle sell. The reputation of stocker/backgrounder operators is based on the health of the cattle they resell.

I am typically not a fan of fancy cattle, simply because they disappoint. We’ve all had that one super fancy heifer we had high hopes for, just to have her raise dink calves and come up open one year. Or that pen a fancy steers that couldn’t grade.

This week I got to see the flip side of some of those super fancy strings and it was surprising. One was a backgrounder reselling his cattle, and another was the operation that bought the fanciest high-dollar bred cows. At first I was shocked at how poorly the cattle showed, and the price reflected that. But then my brain kicked in, and I recall past experience and how hard it is to maintain fancy cattle. It’s like dating. We finally score that date with a really good-looking person we’ve had our eye on, only to find out they are too high-maintenance to keep around.

Now let me be clear, since I am sometimes misquoted. I am not saying we shouldn’t try to raise fancy cattle, especially since they bring more money. My point is if we are raising them, are we spending extra on them to make ‘em fancy, and is it worth it? I will caution against buying them, since they often will not look better than the day we bought them. We can’t really upgrade them, so the best we can do is maintain.

I get asked about value of gain (VOG) a lot these days. VOG tells us is what the weight gain is worth. Here’s an example I saw this week. A 420-pound heifer brought $700. A 545-pound heifer brought $754. The difference in price is $54 and we divide that by the weight difference of 125 pounds, giving us a VOG of 43 cents. It will cost us more than that to put the weight on. We need to have the VOG be higher than our COG in order for this to be a weight gain business. In this case when the four-weight heifer weighs 545 pounds, that buyer will have more in her than what she was worth on that sale. This is giving feed away.

Before I get into what the markets did this week I’m going to put this out there: In Nebraska we do not have a face-mask mandate, but some towns are enforcing one. Sale barns are not notifying buyers of these mandates. So it may be a good idea to keep one in your truck. In my hometown it’s now a misdemeanor for not wearing one in public.

This week at some auctions unweaned calves were not discounted, but it took bigger groups. Some of the big feedyards are now having to bite the bullet and start buying bawlers. This week unweaned cattle were $0 to $17 back. With this new interest in bawlers it became crystal clear that it pays to have one round of vaccines in them before selling.

The VOG on steers continued to yo-yo from weight class to weight class again. When we look at prices paid for certain weights and the VOG it is easy to see what weights buyers are zeroing in on. If we sell the right weight and buy back an undervalued weight there are some really profitable feeder-to-feeder trades to be made.

On the heifer side the VOG was more stable, and mostly higher than the cost of gain (COG), on weights over 500 pounds. Flyweight heifers were hit or miss this week. What I mean by that is at one auction there were greatly overvalued, and at another auction they fell in line and were a good buy. I saw flyweight heifers with VOG that ranged from 25 cents to $2.04.

Southern markets remained undervalued, feeder bulls were $20 back, and replacement quality heifers caught a $5-7 dollar premium.

The relationship between fats and feeders didn’t change; the profitable buy backs are on the heifer side.

I’m sure you’re all aware that grains have gone up. I am now seeing hay go up in price here. I have written several times before you have to charge whichever is higher between market value and cost of production. This rise in feed cost is about enough to cause my COG to go up a dime from where it was a couple months ago. It is our job to know our costs and the relationships between feed and cattle. Like the example above on the four- to five-weight heifers, if we are not paying attention to these things and VOG we will quickly and easily end up devaluing our feed.

The opinions of the author are not necessarily those of Beef Producer or Farm Progress.

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