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January 8, 2021
Most people are happy to have the year 2020 behind us. Some hope 2021 will treat them better than 2020. While others think it gives them a chance to start fresh. I fail to see how a measurement of time can change a person’s circumstance unless it's their release date from jail. The reality is the new year will change your circumstances only when you change your mindset.
I read some articles over holiday break that I am going to use as an example to illustrate how powerful a mindset, or paradigm can be. A paradigm is a multitude of thinking habits that controls our behavior without us even realizing it.
In the first article I read the author was trying to prove what a corn stalk bale is worth. To summarize he balanced his ration for price. This led to assigning a value of double what corn stalk bales are selling for. Something else seemed off to me, so I compared the feed value of his two rations, something he didn’t do in his article. The ration with the corn stalk bales was lower in protein and energy, and remember he balanced them for price, so this ration was costing just as much as the other ration with a higher feed value.
His mindset was on showing the value, the same value with substitution, not cost savings. If he had focused on cost savings, he would have used real prices and then made the comparison between the price of the rations and their feed value. Money and feed are the base of the inventory triangle and this mindset will destroy that base.
The second article I read was on shortening up the calving season. This article assumed the cows were already bred over 5 heat cycles and the author wanted the calving season shortened to 3 cycles. She gave two options on how to do this. Both were similar as they resulted in selling undervalued females and replacing with overvalued females. The author’s focus was on tightening up calving dates, not on the marketing of the females, or profit. Cash flow did enter her mind because she stated that ranchers routinely have difficulty paying their bills on time.
The third article I read was about rising feed prices affecting profitability of livestock. This is forecasting, which is a form of gambling. To accurately forecast the forecaster must predict everything that is going to happen accurately. Forecasters are paid guessers.
I decided to test his theory this morning. I used $5 corn to change the cost of gain, and you know what, I found a bunch of trades that had $50 profit in them. And in case you didn’t already know it, this week cattle weighing over 600-pounds were lower this week.
When I went through the marketing school years ago taught by Ann Barnhardt she gave us an entertaining speech about the time/space continuum and physics. What it boiled down to is this: we remember the past, we live in the present, and the future is unknown.
My paradigm is focused on profit. The number one advantage we have in marketing cattle profitably is marketing skill. When I pointed out that there were plenty of trades with $50 profit in them all I had to do was look for price relationships. The No. 2 advantage we have is inventory management. Feed, money, and cattle make up the inventory triangle. If you think 2020 wasn’t good, then you probably need to change your philosophy on how to manage these three things, and their relationships in order to prosper in 2021.
In the female markets this week the bred heifer that is third stage and weighs over 1000 pounds is king of the hill. And as usual if she is AI bred there is a little extra added value. If she’s second stage she loses $300 in value, and she loses even more value if she’s first stage.
Three and four year old pairs that were already bred back were equal in price to the high selling bred heifers. So there was really no value in calving and breed back. Also take into consideration that calf is going to be eating feed as well through the rest of winter.
With breds there was around $150 per year of age depreciation. The pairs held value much better with only $50 depreciation per year of age.
Think back to the second article of selling the late calvers. The discount for being late and the depreciation scale can really back a person in a corner. Now is not the time to make that move. Remember we should utilize the market not get abused by it.
Feeder markets did the splits this week, and 600 pounds was the center. Cattle over 600 pounds were steady to lower, and under that weight were higher. This caused Value of Gain to form a trough. Light weight cattle had a good VOG, then it shrinks in the middle of the spectrum, and expands again on cattle weighing over 800 pounds.
If you sold feeders this week, the weight you sold will have a huge impact on what you can buy back at a profit. If you sold on the higher sides of the trough your buy back will be easier and have a handsome profit. If you sold in the bottom of the trough there are some cattle to buy back with discounts.
Those discounts look like this, unweaned cattle were 4 to 22 back (the bigger they were the bigger the discount). Feeder bulls were 20 back, and fleshy cattle were 9 to 12 back. Geographical spreads are also a big factor right now. Southern markets are undervalued, especially on the heifers.
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