January 20, 2023
“A new chapter” is a phrase I heard several times the past week. Some people I talked to had just got out of the cattle business and were trying to figure out what that next chapter would look like. Other people I talked to were beginning a new chapter in their life and part of that new chapter involves getting into the cattle business.
If we look at other types of businesses, people are getting in and out of them all the time and we consider it normal. When we look at how many cattle operations we lose each year, we think it is tragic. On a personal level I agree that it is tragic, and I have witnessed the pain and embarrassment these people have felt. When I zoom out and focus on the industry as a whole, people getting in and getting out is just a natural cycle of business.
Our success in this business will be determined by the successful trades we string together over decades of being in business. Sell/buy marketing, done in a certain way, will ensure that we are generating positive cash flow. This can be done by marketing fats and replacing with feeders. It can be done in a stocker/back grounder operation by selling one group and replacing with another group. And it can be done in two ways at the cow/calf level.
One way is to sell females and replace with other females. The other is to sell the calves that were raised and replace with the next calf crop. We all think we already do this, but do not overlook that I wrote “sell/buy done in a certain way”
The stats can tell the story
I am one of those that will pay attention to statistics. Statistics tell us what the group paradigm is. Check this out, 2% of cattle producers that are calving females are doing so on operations of over 500 head. They produce 16-17% of the calves. And 57% of cattle operations calving out females are doing so with nineteen or fewer females. This group of 57% produces 12-13% of the calves.
All of these little hobby farmers combined are making just as big of a contribution to the industry as the big boys combined. It drives home the point that we need operations of all sizes.
Producers with 100 – 500 head make up 7-8% of those calving cows, and they are producing 35% of the calves. When we examine trends, this is the group that is shrinking in size. One thing is clear, they are not moving up into the 500 head or more group because it stays stable. What is not clear is if these people out right liquidate and are done, or if they downsize and fall into the 50 – 99 head group.
Hobby vs. large operations
While I am almost certain that what we are told about having fewer and fewer cattle operations is correct, I see it in my home area. I also have seen another trend, there are more and more of these hobby farmer types popping up. We never seem to hear how many of them get in the business every year. We just hear how many leave the business every year. I am certain there has to be some high turn-over in this bunch since they make up 57% of operations calving cows.
When the people I talked to told me they got out and were starting a new chapter, they simply loaded up the cattle and took them to a sale barn, and just like that they were done. The people that called me about getting into the business wanted to know how to spot the best value for their money or ask what type of cows they should be buying. In reality, I bet they saw some cow they liked and simply bid until they got her and just like that they were in the business.
I made that sound so simple didn’t I? I know it’s not quite that easy and so do you. Here’s my point, if the majority of people leaving the business are the 100 head plus, and we somehow manage to maintain cattle numbers that would have to mean there are more people getting in that getting out. Maybe it is that simple? So the next question is: Are they profitable?
Cattle Market Update
The feeder markets were just odd this week. I can’t pinpoint any certain weight class that had a great Value of Gain (VOG) because it changed drastically from one sale to the next. Winter storms and cancellations had a lot to do with it. Relationships between cattle can change a lot if one buyer does or doesn’t show up. The one constant is the heavy weight feeders are still a great buyback against fats
Feeder bulls were 4-20 back, and unweaned calves were 4-23 back.
On the female side of things when we look at the prices paid at monthly specials that took place this month and compare them to that stockyard’s sale from last month it is clear females got a boost in price. The sales also stayed consistent with last week’s trend that young females were the most over-valued. The big difference as far as age is the price drops hard if the cow is over the age of 5. The price takes another hard dive as they begin to lose a tooth.
A majority of females I saw sell this week sold over their Intrinsic Value (IV). The only exception to that was the broken mouth cows that are due in the next couple months.
Summer calving females sold above their IV regardless of age. In fact these females sold considerably higher over their IV than winter calving cows. But the winter calving cows had a higher selling price.
Let me clear that up. IV is the value of the cow to me, the producer. That value can change quite a bit from one operation to another based on cost to keep a cow. Her Actual Value is exactly what it sounds like, it’s what she sold for in the ring.
Here is why relationships are so important. The winter calvers had a higher AV and IV. Yet the summer calvers had a wider spread between AV and IV.
So if you are sick of dealing with snow drifts and don’t want to calve in them, the play is to sell your winter calvers and buy back summer calvers. You will sell value into the market but get paid more for it than it is worth.
What that looks like is we sell an animal with a higher IV than the one we are buying, therefore we sell value into the market. We get paid more for that value than it is worth because the difference in AV is higher than the difference in IV. We could generate more cash flow, a lot more, with this swap than we ever could by just selling calves. We also get to calve in longer daylight hours and shirt sleeves.
If you would like to learn more about sell/buy marketing that works I have a school coming up at the end of February Marketing School – Mr Cattlemaster The school is over half full already. If you have questions, don’t hesitate to contact me.
My wife created a Facebook page for those of you who do that, you can keep up with what we have going on there as well. Just search Mr. CattleMaster
Also don’t forget to nominate someone, or yourself, for the cattle marketing DVD set I am giving away. Details here Tackling a life-changing moment (beefmagazine.com) Time to nominate will close on January 31 which will be here soon.
The opinions of Doug Ferguson are not necessarily those of beefmagazine.com or Farm Progress.
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