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Doug Ferguson takes a look at how this week’s weather impacted the cost of gain for cattle sold at the sale barn.

Doug Ferguson

January 12, 2024

6 Min Read
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To my Canadian friends. I like you, but you must understand sharing is not caring, you can keep your weather all to yourself I won’t be offended by that kind of selfishness.

No excuses!

Regular readers likely already knew that what I was going to write this week would center around the weather. I am going to remind you all that you have an excuse to warm up. Next week I will be presenting on the Regenerative Legacy Summit. You can register here The Regenerative Legacy (agsteward.co) The cost is free. This is a virtual event and I have been told that the videos will be offered for play back but you must register. There is no excuse for not signing up because you have to work.   

For all of you who didn’t click the link there is an outstanding line up of speakers. Steve Campbell will be presenting on cow fertility. With all the cows that have come up open the last few years, I would think every cow-calf producer on the continent would tune in for that. Allan Crockett, ranch consultant and business coach, will be on as well. Most of us are guilty of building a lifestyle around the business instead of the other way around. Chris Miles is the anti-financial advisor we deserve, and he will be presenting on growing your income. There will be other presenters covering soil health, reducing inputs, estate planning, and many more.

The weather is certainly an unwelcome challenge.  Last year people up north had a tough winter. Some of them that attended one of my marketing schools would call and tell me that the mindset portion of my school really helped get them through those tough winter days.

Half a year later they would call me and inform me they had so much grass they didn’t know what to do with all of it. After the dry spell we’ve had across the region maybe we will be fortunate like that also, after all this.

The only thing more frigid than the weather is the bred heifer market. Since Thanksgiving and early December sales they have really cooled off. I have tracked the sales of thousands of these young mommas and am putting together some interesting data. I may share some of it on the virtual summit next week and will certainly be sharing it on upcoming Intel blogs.

Dead equity

Here is something regular readers may recall. Through summer and fall I regularly wrote that a $5 shot of Lutalyse would add $500 value to a heifer.  Most of the bred heifers that have sold the last two weeks, in the central plains states, sold at or for less than a producer would have in them. The few that sold over cost are only selling for 4% more than what a producer would have in them. This is what happens when we ignore market signals that are happening in real time and bet on the come.

2023 was supposed to be the year bred heifers were to soar in price, but it hasn’t happened. I have started referring to the bred heifer market as dead equity, because that money could have been invested in something much better.  If we are in business, it is our job to deploy capital and we should take that job seriously instead of gambling.

What have your bred heifers done?

What if you have bred heifers? If you planned on selling them, or have to sell them, all is not lost. Open replacement heifers are slightly under-valued to them. After costs are paid there will be a sliver of positive cash flow.  Another thing that is noteworthy and hard to miss is that second calving females are selling 9% higher than bred heifers. The sale of the first calf should cover the cost to keep and the factory goes up in value. I am going to talk about this on the Legacy Summit.  Here’s a taste: when we try to market bred heifers we sell them with a checklist of things we did to them, buyers are interested in what the heifer has done.

All bred females are selling over their Intrinsic Value (IV) until the vet points out their teeth have some wear on them. Short solids (SS) take a hard drop in price and from there on up they sell below their IV. Until the vet calls her a SS there is little depreciation.

Weather vs. cattle markets

The weather certainly messed with the feeder markets and continues to do so. I have received notifications from sale barns all over Nebraska Missouri and Kansas that sales for the first part of next week are cancelled and dates for female sales are being rescheduled.

Most weights took a dip in price, some up to 20 dollars. Surprisingly to some, some weights were a few dollars higher but this was on the heavier weight feeders. This dramatically changed the Value of Gain (VOG). Last week there may have been a 25-cent slide, and this week the slide was 9 cents. This caused the VOG of some weight classes to skyrocket from what they were last week. 

I’ve had this conversation before with people that sold cattle before a storm. They are upset because the market was down 20 from the previous week’s price. They feel like they got screwed over. Here’s the thing, the guy that bought the cattle saw the same forecast the seller did.

The buyer was willing to do what the seller wasn’t and that is take care of the animals in the nasty weather.  The price must drop enough to incentivize the buyer. In this case they both got what they wanted. The buyer got a good buy, and the seller gets out of doing chores in cold weather. I say this in everyone of my schools “If you are going to run from the work you might as well hide from the money.”

Cost of gain

The math way is the pathway. The weather screwed up everyone’s plans. A producer that attended one of my schools sold cattle this week. Based off what the market told us last week we can all understand why he did. The stress from the storm caused the cattle to shrink more than usual. This caused his Cost of Gain (COG) to skyrocket. 

It is our cost that determines what is over or under-valued. The loss of weight and higher COG messed up his plans. He looked at some other markets and found cattle that were under-valued, taking advantage of a geographical spread.  Storms mess things up. These things happen. Learning sell/buy marketing can help you find your way through a storm.

The opinions of Doug Ferguson are not necessarily those of beefproducer.com, beefmagazine.com or Farm Progress.

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