Finding the opportunity in cattle marketing

Plus, listen to those around you when it comes to substance abuse and your mental health.

Doug Ferguson

May 19, 2023

8 Min Read
Watch each Friday for Doug Ferguson's Market Intel blog on Beef Producer and BEEF magazineVECTORBOMB-THINKSTOCKPHOTOS

Before Covid and my daughter’s basketball schedule took up so much of my time I would go to estate auctions. Even though I was there to buy tools I would pay attention as other items were auctioned off. A lot of these would sell off coins and old dollars. While I knew nothing about these things I would watch and listen to what others were saying. I eventually picked up that coins before certain dates had silver in them. Coins made between certain years were collectable because during that time they changed the allow when those were made, and that some had a special stamp on them that made them rare and collectable.

A few weeks ago, I stopped at a fast-food place to get a meal before heading to a cattle auction. I am old fashioned and use cash to pay for things. At the end of the day I emptied my pockets and looked at the change I was handed, and I noticed one of the coins was made between certain dates and had a different stamp on it. Later in the week I took it to a coin shop just to see if I had something. I was told if it was graded and sealed, and if the grade reached a certain score my nickel may be worth over $2,000!Paying attention at those auctions and paying attention to what I had in my hand that day may finally lead to a score. (I haven’t sent it off to be graded.)

Cow depreciation

Some people are paying attention. The last couple of days I have received messages asking my thoughts on an article about cow depreciation. The author of that article should pay attention to the industry he was writing about.

Here is a line that caught my attention “Cattle aren’t assets that appreciate in value like land.” When I think back over the last nine years we saw the price of commodities sky rocket and then crash.

Female bovines

Land prices did the same thing here. Here’s what else followed the same trajectory, female bovines. If we bought a heifer in the spring of 2014 as the market was going up we bought her for $1,220 (I am going to be using local prices based off where I live.)

At the time some people thought that had to be the top, but the market had much more steam left. A year later as a bred heifer she was worth $3,500. Cattle most certainly are an asset that appreciates, that is how we make money.

While the article was titled something about calculating depreciation of cows, it side stepped the whole process summarizing it will vary from one operation to another and will depend on several factors. One of those factors was the price paid for the animal.

In my sell/buy marketing classes I teach to assess her value every year, this way we are making certain she is earning her keep in our herd. This allows us to capture appreciation value and deflect depreciation as well.

If the open heifer we bought in 2014 is the base price and we sold her for $3,500 we captured all the value. But if we kept her (because people like to keep things that are worth a lot of money) and finally had to cull her in 2020 for some reason we sold her out at $780. She only depreciated $440 during that time from the original purchase price ($1,220). If we culled her today, we could get $1,280 for her, capturing appreciation value.

She is worth more as an open 10-year-old than when she was an open heifer with her whole life ahead of her. The inflating dollar and demand for weigh cows is why? Isn’t that what drives land prices? Inflation and demand?

If we assess her value every year and we could’ve sold her for $3,500 and we didn’t, then that means we effectively just bought her at that price. Every day we don’t sell an animal we just bought it back into our inventory at that day’s price. Opportunity cost. So it doesn’t matter what we paid for her.

If we now use $3,500 we can more accurately track depreciation, because really it is the market that determines both appreciation and depreciation.

Value of Gain

Other things we need to be aware of and pay attention to is how sales people manipulate the Value Of Gain (VOG). I see feed sales people and bull sale catalogs do it all the time. They try to convince you to feed a certain feed or pay more money for a certain bull and you’ll be able to sell more pounds come weaning time. They show you some math but conveniently leave out the slide for the weight gained, or the discount for having fleshy creep fed calves. The bull salesman ignores the fact that there is only so much nutrition in the cows milk and your grass that will unlock only so much of that genetic potential. I refer to this kind of manipulation as the siphon hose. They don’t care about your wellbeing as long as they can siphon money out of your pocket.

Marketing Podcasts

If you are reading this, I assume it’s because you are looking for a nugget of information to better yourself. This means you probably also listen to podcasts and webinars. I listen to the same podcasts and I was shocked to hear a marketing guru admit he doesn’t implement the marketing strategy he teaches people at his seminars with his own cattle. I again was shocked when he used the word “manipulate” when discussing numbers. Apparently if he needs a slide to come out a certain way he manipulates numbers to get the desired result. The rest of us live in the real world and are handcuffed to the real numbers and we need to know how to use them in a certain way to prosper ourselves.

I watched a webinar on marketing back in January and the presenter there did the same thing. He manipulated the numbers by adding some sort of common core math step that didn’t belong. However, his slide ended up showing that if we just sell the same cow 2.4 times we just effectively paid for the replacement heifer.

These things are easy to miss and remind me of a trick I used to play on my daughter when she was younger. I would try to convince her I had 11 fingers. I would count one, two, skip these three. I would then go to the other hand and continue counting 4, 5, 6, 7, 8.Then go back to the three fingers I skipped on the first hand and continue 9, 10, 11.

Folks there’s all kinds of tricks out there implemented by people utilizing our trust in them. Pay attention. By paying attention we won’t be an easy target to be taken advantage of and we may just find a small opportunity that will pay off in a big way.

Cattle Market Review

This week feeder markets were higher. Depending on which class of cattle we look at in particular they could be 5 to 20 higher. This naturally causes the VOG to fluctuate between weights. The good news is that most weights have a VOG that easily covers Cost of Gain.

There is a spot in the spectrum around the six weights where VOG drops off hard. VOG takes another dip on cattle weighing over 800 pounds. This sets the stage for back grounders and stocker operations to capture some handsome margins. Not because the price went up, but because of the relationship differences between weights.

With the VOG dropping off on the heavier feeders this sets the stage for feed yards. This low VOG subsidizes them with cheap weight that they can buy cheaper than they can feed it on. They are also getting a little help from the corn market dropping by about a dollar in the last 30 days.

When feed prices drop like this we tend to see the cost savings get bid away on replacement cattle. We often hear that if one segment is making money the others are not.

Once again, the markets fly in the face of conventional wisdom as we currently see that stocker operations, feed yards and cow/calf should all be making money, that is unless they are not paying attention to what they are doing.

Substance Abuse

Another week of mental health awareness for May. A factor that is greatly affected by mental health is substance use. Both are treated together if they become a problem. Alcohol is legal for adults, but it can easily be abused quickly and affects our daily functioning.

In the past couple of weeks, I have discussed finding your supports and utilizing them. Some turn to alcohol/substances as that “coping skill/support.” There is substance use treatment that can be incorporated into mental health therapy services to help when substance use becomes a problem in your life.

Accept help

Often times, family/friends will recognize the problem before you do. Listen to them, they want to help. Be open and accept the help. As Mr. CattleMaster often says, you need to know and understand yourself. You need to be paying attention to your own mental health and functioning level in order to prosper.

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