High return, easy money?High return, easy money?
Plus, a look at dealing with the auction and farm stress this week.
May 5, 2023
$3,200 first calf heifer pairs. That’s what everyone is going to hear about and be excited about. The capital gains investors are grinning ear to ear. They see the appreciation value from taking a five-weight heifer and turning her into that $3,200 pair. It looks like high return and easy money.I am certain it will be in the subscription newsletters and webinars the rest of this month.
There was only a few dozen of those $3,200 pairs. There were 220 more first calf pairs in the offering that day and their average sell price was $2,245.When I calculated that average I included the bid price the auctioneer had or was asking for when some lots got Passed Out (PO). For those who don’t know what a PO is it means those cattle didn’t sell. Some sellers refused to let their cattle go that cheap. Sometimes you have to defend yourself when you sell. The auctioneer didn’t even receive a bid on some of the lots.
I have seen auctioneers get frustrated when they are trying to sell stock and no one wants to bid. The rafter brothers were the most active bidder at this sale and it got to the auctioneer after a while.
In this particular female sale there were over 1,000 head of pairs and bred females of all ages and stages of pregnancy. This sale made their sale order by pairs then breds selling youngest to oldest. Never was sale order more important than this day. The first few lots of each division sold well and sold above their Intrinsic Value (IV).A few groups into each division and the price dropped and the females sold below their IV. The first calf pairs sold above their IV halfway through their division. No other grouping managed to even come close to doing that.
This is where being a patient bidder really paid off.I should explain that it is dry in my region and due to that we are seeing some outstanding quality females selling we wouldn’t otherwise see. Some buyers got excited and jumped on the females that sold at the beginning of their division.They got what they needed and were done buying. This set the stage for a hard price drop after just a few lots. If a buyer was patient he could buy just as good of quality for $500 to $1,000 per head less than the guy that got excited. Many of the females that were 5 years of age and older were selling just over the scale (both breds and pairs).
Cattle Market Review
I made it to a couple other female sales this week and the market was even worse. There were no buyers for breeding stock in the seats. Every pair was split, that is when it became clear there was no one there to buy fly-weight calves. And every bred cow was weighed up and sold just over the scale.
The predictions of the “Good times to come” may finally be here. However, they are not as advertised. The good times happening right now are if you are a buyer. This is a rare moment where a person can buy this type of quality at these prices and this far under their IV.
These are ugly times right now if you are the capital gains investor who jumped in and bought breeding stock in the last six months. These people have lost equity.
Despite all the females that are under-valued right now there is still an abundance of optimism. OCV replacement heifers sold for $1,500. The $2,200 first calf pairs isn’t scaring these buyers off. I wrote this last week, there are better margins finishing these heifers than there is breeding them. Not to mention there will be greater turnover which is a fundamental of generating profit. If we ignore the handful of market topping bred heifer and heifer pairs there really hasn’t been a market signal to breed open heifers year to date.
The capital gains strategy is plain risky. Calling it a fancy name and trying to spin it really doesn’t change what it is, buy and hold. This freezes up cash flow and that is where the problems begin. Most don’t realize they are in trouble until it is too late.
I mentioned that we are seeing top notch females sell due to drought, so that brings up the question of what are we supposed to do? Legit sell/buy marketing done in a certain way can alleviate the burden of a drought. First off our number one priority is to protect the inventory triangle of feed, money, and cattle.
Feed and money are the base of this business. Some are already in deep trouble as they have burned cash to buy hay and now they are being forced to sell off the cows that ate the hay. They are in a position of less cash and fewer cattle now.
With the sell/buy method I teach we are sure we will be selling value into the market and getting paid more for that value than it is worth to us. I mentioned that some lightweight stockers are under-valued. A skilled marketer can spot and interpret these values. Capitalizing on them we can sell the breeding stock and replace with lighter weight stockers doing two things. We stretch our feed budget since the smaller cattle eat less, and we bring cash into our inventory. Both protect our base, and we still have cattle in inventory which I feel is extremely important right now.
Here is why I think it is important to hang on to cattle right now. We have no idea if this market has a bunch of steam left in it. If we sell out and go on vacation until it rains again, at what price will be trying to buy back in at? If the market continues to go up we will not be able to go head for head without running out of cash first. Sell/buy marketing utilizing turnover and generating cash flow will help us to stay current in the market without destroying our base. And if it gets really bad we may have to ship the cattle somewhere else. Those of us that know how to generate positive cash flow will have a huge advantage over those going for capital gains and deflecting depreciation.
Coping skills—We need them.
The month of May is Mental Health Awareness Month. This year I have decided to add a bonus feature each week pertaining to mental health. My wife Amber is the Clinical Director at Blue Valley Behavioral Health. I will give her a topic and turn over the keyboard. This week I am asking her to cover coping skills for stress. As entrepreneurs we are always in the thick of it and learning how to deal with it is a skill just like marketing.
Thanks to my husband for including me in the blog this month. Mental health is something that all humans are born with and should be embraced throughout our life. We all have stress starting as a an infant and we learn from our environment how to deal with it. How do you handle stress?
Everyone must find their own coping strategies to reduce stress to the point that is manageable and does not affect our functioning day to day. My role as a mental health therapist comes into play when you don’t have any coping strategies and your stress/anxiety is affecting every part of your functioning. At this point, you should seek mental health counseling to address the symptoms of anxiety/stress and a therapist will help to identify your triggers, and then talk through them and then identify coping strategies that you will use daily/consistently to reduce your stress/anxiety level.
Some common coping strategies I often suggest are exercise, eating healthy, deep breathing, grounding exercises, relaxation skills, and talking to a support person in your life. All of these need to be done consistently and practiced at times when you are not over the top stressed out. This, in turn, trains the brain to automatically start using your skills when you are more stressed and struggling. The more you talk about your emotions and release them, the better. Don’t hold them in, this only causes more struggles for you long term.
The opinions of Doug Ferguson are not necessarily those of beefmagazine.com or Farm Progress.
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