Dealing with expectations and opportunities

Profit standards in the beef market should be based on finding value at all times, aiming for profit in all years.

Doug Ferguson

April 14, 2023

6 Min Read
Higher expectations offer profit potential for cattle producers
SET THE BAR HIGH: Raising expectations about how your beef marketing approach should operate can put money on your bottom line. The key is understanding values and opportunities in any trading situation.Vectorbomb/Thinkstock

This week my 12-year-old daughter was telling me about running the mile in physical education class for physical fitness testing. I made a comment that her time could have been much better if it hadn’t been so hot and windy when she ran it. She informed me that she beat the required time by almost three minutes. That got my attention, so I went to Google again. According to Google in the mid 1980’s the required time for a 12-year-old girl would have been around 8 minutes and 30 seconds. Today the required time is 11 minutes 5 seconds.

The standards have been lowered, no doubt to fit the lifestyle and dietary choices made by people today. So, I looked up the definition of the word standard and here it is: noun 1) level of quality or attainment 2) an idea or thing used as a measure, norm, or model in comparative evaluations. adjective 1) used or accepted as normal or average

The bar has been lowered for the girls my daughter’s age compared to where the bar was set for the girls I went to school with decades ago. As a parent the painful knee jerk reaction is “what are we teaching these kids?”

What is even more alarming to me is how adults do this very same thing in business. During the popular psychology portion of my marketing schools, I teach about how the subconscious mind (SCM) works as an auto servo-mechanism. The example I use is how the smart people in Denver have told us that cow/calf producers only make a profit three years out of 10. At first our conscious mind rejects the idea because our personal goal is to be profitable 10/10 years. But as we think about it more the idea settles into our SCM. The SCM acts as an autopilot or a thermostat. It thinks that is what we want because that is what we are thinking about most of the time.

Understanding a beef marketing mindset

Here is what happens. First year there is a blizzard that kills off a bunch of our calves at calving time, so we won’t make a profit that year due to high death losses. The next year things are better, and the market is high so we make a profit that year. Then the drought hits and we are forced to cull at reduced prices. The next year is a rebuilding year so there is production lag which means no profit those two years either. By the end of the decade our operation made a profit 3/10 years

Then we rationalize what happened. It wasn’t our fault. The weather, markets, packers and a list of other factors were to blame. Rationalizing is simply rationing lies to the mind. We lowered the standard for ourselves, and if we do this in front our kids, we lowered the standards for them too.

Last week I got to speak to 8th grade students at their career fair. One of the bullet points I was asked to address was what kind of education does a person need to have to succeed at my career. My answer to this is the correct one.

Take the cow/calf example from above. With the correct education in marketing and resource management the producer could have hit or come much closer to hitting the target of 10/10 profitable years. The problem is the producer entertained and got stuck on the wrong idea from the wrong people. Momma warned us about being careful who we listen to and spend time around. It can and will affect our results.

The standard is so low in this industry anymore that some marketing schools have even built in an escape hatch for executing losing trades and it comes with built in excuses. My response to that is simple, quit doing poor trades. Pay attention to what you have and what is going on in your business and the markets and respond accordingly. The systemic thinking problem in the cattle business about lack of profitability can be solved with taking responsibility and gaining market literacy.

Yesterday one of the varsity coaches told my daughter what they would like to get out of their players as far as a three-point shooting percentage. It was a bit high and that is fantastic. If we set a high standard or expectation the truly great ones will rise to meet it and exceed it.

‘New’ money in the cattle market

This week I was on the phone with people scattered about the east half of the country and at some point they made mention that there were people at auctions buying cattle they haven’t seen before, or haven’t seen since the last time prices got really high. I am seeing the same thing here at home.

Some of us have a term for these people, we call them pigs. The definition of a pig is an investor overcome with greed that leads to speculative market behavior ultimately resulting in disaster. These people have all heard about the rise in cattle prices and the tight supplies we will face in the future which will only drive demand higher and lead to higher prices.

This “new” money coming into the market is creating a bit more volatility at local auction barns. While it is frustrating to bid against the gamblers ignoring value of gain and betting purely on the come, they can help us execute prosperous trades. Figure out what it is that they want and sell it to them. People wanting animals is what makes them over-valued. Help them out and sell them what they want and buy back animals that people don’t want right now. This trade will generate positive cash flow, and it’s fun to brag about sticking the fat pig.

Those of us in this business should be in it for the long haul and that means being excellent at what we do. Stringing together successful trades that generate positive cash flow over decades in business is how we will determine how excellent we were, and it all begins with setting a standard for ourselves.

View from the cattle market

I mentioned that the VOG is fluctuation due to new money coming into the market. The best I can really do to pinpoint VOG this week is that it appears to have the trough effect again. It is high on fly-weight calves then condenses a bit in the 5 to 6 weight range then it goes back up on the heavier feeders. For reference, the dip in the middle will be below Cost of Gain in a back grounding yard. If the cattle have been running out on a cover crop COG stands pretty good odds of being lower than VOG throughout the spectrum.

Heavy feeders continue to be a great buy back to fats again this week. Feeder bulls were up to 35 back and unweaned cattle were up to 25 back.

I have had a few conversations that the price of breeding stock is going up a bit yet I continue to write that their sale price is still below their Intrinsic Value. That is because the IV is going up too. Market literacy means being able to calculate the IV and compare IVs and actual prices. Since the price of calves and pound cows keeps going up the IV will mathematically go up as well.

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

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