Changing market demands literacy

Understanding costs, and the value of the dollar, can help put profit in your pocket.

Doug Ferguson

February 11, 2022

5 Min Read
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If you are reading this column you are interested in making money with livestock. It will be of interest to you that I have another Master Marketers in the Making sell/buy marketing school coming up April 1 and 2. I updated my website a few days ago and have not yet shared it anywhere until today and already registrations are coming in. If you are interested get signed up early.

Wally Olson is having a stocker special March 22-25. Part of this school will feature Dawn Hnatow teaching stockmanship. It should be a great event.

This week I was processing cattle and a lot of them had short ears. I fully realize sellers are upset when buyers sort these off a group and the short ear cattle are discounted. We must sell what our customer wants to buy. I am old enough to remember when the custom was always right. Today’s culture has changed that.

As customers we seem to be getting told how it's going to be. Auctions are as close to laissez-faire free market capitalism as we will get. The short ears on these cattle added a degree of difficulty during processing. As a father of an 11 year old girl I got to thinking this added difficulty could get her seriously hurt if she were doing the work.

I noticed the birth dates in the ear tags were all from a year ago when it was 30 below here. This week the temps were in the 50’s, what a difference a year makes. When I think of someone getting injured because of dealing with the froze off ears, I am no longer sympathetic about what the cow calf operator went through during calving.

They picked their time of year to calve, and I don’t think these cattle are discounted enough now. There are usually only one or two guys that will buy these short-eared things in a crossroad sale barn. If one decides to quit buying them, you may be down to only one bidder. Something to think about when making breeding decisions this year. Are you going to breed them to produce a calf for market price, a premium, or a discount?

Value of the dollar

If you have been a regular reader of this column, you’re familiar with the inventory triangle of feed, money, cattle and how I added time into it. I have stayed away from sharing my thoughts on money because I know everyone has their own opinions.

This week the woman that runs the local gas station told me everyone was getting sideways with her over the price of gas going up. Most people think of the value of their dollar as staying the same and therefore they think the price of things is going up. Those of us in commodities know that our dollar trades against other currencies every day, and the strength or weakness of these currencies can affect trade deals.

When I mention the value of the dollar, I should be clear what I mean. I am talking about the purchasing power of that dollar. The reason gas seems to be going up to these people is because the purchasing power of the dollar is going down.

The devaluing of the dollar is affecting everything. I have seen the different feedstuffs I use go up 20-50% from a year ago with most things being up 20-33%. It does us no good to look back into the past because it is over and we can’t change it. This is not lost on me. But I was curious, so I dug through my notes and compared the prices of cattle to this time last year. Fats are up 28% and most feeder steers are up 19%. Hold on to the fact I used the word most in that last sentence.

Last year fats were under-valued 48 weeks out of the year, that’s why I rarely wrote about them last year. They were under-valued to the replacement feeders that came in behind them and they were under-valued to the feed they consumed because their COG was higher than their VOG. We probably do not need to use our calculator any further to tell fats are a good sell right now since they are up 28% and most feeders are up 19%.

Even with these increases in feed and cattle prices there are still prosperous trades to be made, even though inputs are going up faster than the price of cattle. It requires market literacy to spot them. Last week it was easy by mid-week because the entire spectrum became extremely liquid. This week it is more difficult.

Now I hear people saying the numbers don’t add up right now. This is the market literacy part, they don’t understand how to utilize math. (being able to do math and utilize it are different) Here is where the word "most " comes into play. The five-weight steer in Nebraska is up 28% from a year ago. That rascal is keeping pace with fats, feed, and fuel. I seem to have stumbled onto something ground-breaking here which is, people buying the most over-valued animal are losing money.

Cattle market update

This week the markets were higher. The cattle under 650-pounds got the biggest boost in price getting up to 13 higher at some auctions. The bigger cattle were only a few bucks higher. This changed the VOG and relationships greatly. It’s next to impossible sell an animal weighing over 600-pounds and replace it with an animal under 600-pounds and capture a positive margin.

It is easy to capture a positive margin if selling a six weight and replacing with a lighter animal, and it is possible to sell a heavy animal weighing over 600 and replace it with another lighter animal that is still itself weighing over 600-pounds. This is in the plains markets

Fats work against heifers and feeder steers weighing 7 and up.

In the south the VOG is all over the place. To clarify that I’ll give an example. At one sale 3- to 4-weight cattle had a VOG of $1.47. At the next sale they had a VOG of 56 cents. And it looked like this all week from one sale to another. Two things are clear and that is the VOG on making a six weight weigh 7 is almost nonexistent no matter where you are in the south. The other thing is southern markets are under-valued to plains markets.

Feeder bulls were 15-25 back and unweaned cattle could be as much as 25 back this week.

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