Consider your market advice sources

Do those you follow have 'skin in the game'? It's something to consider when evaluating information.

Doug Ferguson

March 18, 2022

6 Min Read
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The last couple weeks some readers have reached out to me and expressed some confusion about what they read on BEEF. They feel that my articles go a completely different direction than the other ones do. We must remember that when something is posted on this site it is BEEF’s job to share information. It is up to us to decide what we can use.

In the last month I have started referring to some allied industry groups as the siphon hose bunch. They are the ones trying to siphon money out of the cattle producers and not returning anything of value. This is a wide range of folks. It can be the industry groups trying to sell you a membership, to the feed salesman that calls on you.

There are many folks selling gimmick items that only exist to offset poor management decisions. It includes the university types, the forecasters, the people who do trend analysis, and the people who teach schools without really doing what they teach. Simply put, it’s the people who don’t really have skin in the game, and don’t care if you make a profit at the producer level as long as they are getting paid. This is why I said what I said a couple weeks ago about needing to do a better job vetting our experts.

I wonder if these people would follow their own advice if they had to sign the front of a six figure check for the stock they just bought with their spouse looking at them a little sideways telling them this better work. That reminds me, we have a Mrcattlemaster Facebook page. You can go there and see what I bought this week.

What's the right question?

One way that helped me sort through information when I was younger was to ask the simple question “What does this have to do with me making a profit?”

One article that generated a lot of discussion was the one on Livestock Risk Protection insurance, to protect us against the market going down. I’ll just post the disclaimer here for BEEF, this is how I see things. We have complained, some even brag about losing money, for so long that someone got a bright idea, to sell us insurance because we lack marketing skill. It’s not taking advantage of us; it is providing a service.

Think for a moment. Insurance companies are in the betting game. They know the probabilities of something happening. We buy their product to lay off risk. They would not be in business if they were paying out more than they were taking in.

Every example I have ever seen in LRP has shown several policies side by side, usually over several years. Half the policies shown paid out, which makes it look like a break even or no big deal. When we look closer at the numbers, we see more was paid in premiums than was received as a claim. This only raises cost of production over time. Not something we want to be doing if we are trying to make a profit. With sell/buy marketing skill this service is unnecessary.

There was an article about holding cattle through a market downturn. It went into discussing things that have nothing to do with making a profit. At my marketing schools I have slides that show how holding cattle through a downturn can dig us into a deep hole.

With sell/buy marketing skill we turn inventory during a downturn. As we turn, we generate positive cash flow. This cash flow will help offset inventory valuation going down. We cannot control what the market does, but we can control how we utilize it and what we have in inventory.

Focus on what matters

We have also been hearing all kinds of buzz about Choice/Select spread and the need to upgrade our genetics. If we look deeper into this, we realize that’s all it is, just buzz. I dug into this topic this week and I’m not sure how the smart people overlooked some seemingly simple things, maybe their information was dated? It doesn’t matter at the producer level, but it has me questioning their motive.

Here is what matters at the producer level trying to make a profit. I’ll give you a buyer’s perspective if you are selling at auction. The cattle run into the ring and buyers have a few seconds to make a visual appraisal. The weight is then posted on the screen and then the only thing that matters is the bid cry. No cares are given about your genetics or how much you paid for bulls. The auctioneer only says those things to make the seller feel good

Another cattle feeder and I were discussing this earlier in the week. He and I both will finish the undesirable cattle and we both have been in the situation where we had to grid them. The discounts on some were offset by the premiums on others putting us even with the cash market. The undesirable cattle are average.

If you do sell cattle on the rail and try to get a premium, I would be cautious of keeping heifers back. I made this mistake years ago and can tell you, carcass traits in a cow make them hard keepers. In fact none of my carcass trait cows were around to have the third calf. It is difficult to catch premiums when the factory is closed.

A view from the market

This week feeder cattle were mostly higher. Now not all weights of cattle go up at the same rate. This changed the Value of Gain again this week, and in a more positive way. It also changed the over/under-valued relationships. One thing I noticed is that while prices may vary a bit from one sale to another the VOG through the heifer spectrum was pretty much the same from one sale to another. How’s that for equilibrium? The steer side saw more volatility on VOG due mostly to buyer interest or lack of interest in bidding on steers under 500-pounds. This means some auctions showed a huge VOG of fly-weight steers while others showed only modest VOG on them.

A really bright spot is if you sold fats and are buying back these 10 weight feeders. There is a huge margin there. Of course the polar opposite is the person selling the 10 weight feeders

Female sales surprised me once again. The worrisome words of six weeks ago are replaced by strong optimism. Young females are seeing more and more demand every week, with young pairs stealing the show. If you went through the hassle of calving first calf heifers, you can really cash in your chips right now. As we get into the older solid mouth cows the value drops off hard. I saw a lot of good, older cows sell just over the scale. These mommas have an intrinsic value that is much higher than their actual value.

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