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Create success for your beef herd

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Watch each Friday for Doug Ferguson's Market Intel blog on Beef Producer and BEEF magazine.
Don’t let anxiety push you to back away from the right approach to profit.

I have written before that sell/buy marketing is the oldest form of marketing. It is the oldest because it works. I have also written many times that I believe the market will come around and take care of us. Some people have a hard time believing that because of the way we have been mentally conditioned to fight the market. And that is a fight we will lose 50% of the time.

There are many ways to fight the market. Probably the most common one is trying to time the market. The idea of having a certain weight to sell at a certain time of year is branded into the minds of most people. For my entire lifetime articles and charts have been printed reaffirming this idea.

Thing is those were written based off of price levels and not on the price relationships between animals. We have witnessed in recent history that we can have historically high prices and people will still find a way to lose money. History has also taught us that people can get wealthy at a time of low prices. So why we haven’t gotten this idea of trying to hit a seasonal price spike out of our head is lost on me.

People will go to a sell/buy school, either mine or someone else’s, and they will call me when looking at doing their first trade. They tell me the math says to sell these and buy these other ones. But then they have a problem with the cattle they are looking at buying. They fear that if they buy them, they won’t be big enough to sell in a certain month, or hit the board at a certain month. That quickly they went from sell/buy thinking to buy/sell thinking, all in the same swap.

There are some strong feelings of worry, nervousness or just being uneasy about the future outcome of buying a certain set of cattle. There’s a word for that: anxiety.

If we do things in a certain way, we will be alright. It may not be the outcome we hoped for, but it will be a positive one. If we abandon our discipline and give in to the feelings of anxiety we can be guaranteed one thing, our best odds are 50/50 we will have a positive outcome.

Consider the value of patience

We must learn to be patient. One of the fundamental laws of the universe is time changes things. If we buy an under-valued animal today time must pass before it is over-valued. It could be a short amount of time, or it could take longer. Being patient will require focusing on our target of turning a profit with those animals. When I say the market will come around and take care of us, I am talking about being patient. We have to wait our turn.

We must also be present. When people start fretting a set of cattle won’t be at a target weight at a target month, they are no longer present, and here is where anxiety creeps in. With sell/buy marketing we only deal with today.

We must be in the present if we are going to finish and hit our target. Most people who dropped out of Navy SEAL training, quit an ultra-marathon, or quit on a business idea did so because they were not in the present moment. They let the uncertainty of the unknown future get to them. The anxiety of the unknown caused them to doubt themselves and if they could keep going.

There is an overabundance of market information that can easily overwhelm a person. We don’t need to know all that stuff. The bid is the perfect distillation of all the market info we have. I say it is perfect because we can use it in algebraic equations to calculate Return on the Gain (ROG), which is the ratio of dollar to pounds on a trade. And we can use it to find the Efficient Market Value of cattle, which is the maximum amount we can spend on cattle and still hit our profit target when replacing.

Did you catch that last sentence? Capture our profit target when replacing. The only thing we have control over is the buy, and we do it with the only current information that matters, today’s bid. If we can grasp this idea I really believe the anxiety people feel due to the market will go away.

The last thing we need to address is being intentional. If we are not intentional, we won’t be patient or present. To be intentional we need to have a set target, in this case it is turning a profit. To me being intentional means doing profitable things, or that our actions fall in line with our target. We must also be intentional in the words we use. Whatever we speak or think needs to be in alignment with our target of being profitable

I will continue conversation more in the future. In conclusion we can have a profitable business if we are disciplined and implement sell/buy in a certain way. We have to be patient. We have to be in the present, which again I believe will ward off anxiety. And we must be intentional.

A young rancher called me this week and in our conversation he shared a line from a large and wealthy rancher he knew “cattle weren’t meant for ownin, they were meant for tradin”.

Cattle market review

This week when I calculate Value of Gain (VOG) from one sale to the next there is only one trend, and that is the market is playing the accordion. We cannot pinpoint one weight as having the highest VOG right now. One weight class will have a low VOG and then it set the stage for the one right above it to have an inflated VOG. Where the bunching and inflating happens in the spectrum changes from one auction to the next.

This market behavior is not really an issue. If we look further down, or up the spectrum than just every 100-pounds the VOG averages out which means we can still make profitable trades.

What if you bought a set of calves a short while ago and you thought you could put a little weight on them and get them into a weight class at a certain time, and the market did this accordion trick and the cattle you sold were the weight class that got bunched on the VOG. This is when we need to understand the difference between VOG and Monetary Gain. Some people try to tell us they are the same thing. They are not the same thing and that is why the industry has slang terms for Monetary Gain.

Here’s a look at some monetary gain. Feeder bulls and unweaned cattle were up to 20 back this week.

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

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