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In cattle marketing, keep your eyes on the prize

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Watch each Friday for Doug Ferguson's Market Intel blog on Beef Producer and BEEF magazine.
That prize is making money, and being market aware can make a difference in your cattle business

In 2015 I had a pen of cattle in a custom yard. I went up there to look at them one day and told the feed yard to show list them. Here is what happened. One packer wasn’t bidding on cattle at the time. The price of fats was okay, and they had hundreds of thousands of their own on feed. The second packer wasn’t bidding on cattle that week because their kill weeks were full for the next two weeks. A third packer told us they had no interest in my pen of cattle. How convenient is that for the fourth packer.

You see I have been a part of the collusion that takes place. When things like the cyber-attack this week happen, I have to admit I kinda snicker a little. A little piece of me thinks they deserve the karma for how they treat cattle feeders.

We have to set our emotions aside and stay focused on the goal of making money, no matter what the situation. That’s what I did in 2015. Here’s how that ended. The fourth packer bid my cattle, but with a catch. His bid was only good if he could buy the entire show list. Now you know how that ended. I wanted to sell mine, but someone else refused the bid and the deal was off. My ability to market cattle should not be in the hands of someone I never met. The feed yard owner and I had a conversation about this.

I then made some calls and got my pen sold. I even got a little more for them than the original offer. I got the trucks lined up and then called the yard and told them they will be loading out my cattle at a certain time, and to send me the bill for what I owed them.

I knew the bid was good enough for me to buy back replacement cattle at a profit. I took a proactive approach to get it done. With packer buyers acting like they could walk all over the feed yard owner I was certain I would end up a victim if I left it in his hands.

Some of those calls I made got heated, and things were said. When all was said and done the packer, the feed yard and me made some money off those cattle. Funny thing about positive cash flow is it makes people forgive the harsh things that were said. The only people I am not sure if they made a profit are the cow calf folks that sold the replacement cattle I bought.

Profits matter throughout the system

While others and I may feel a little satisfaction from the cyber attack we must remember what is important. We need the packer to make a profit, so they stay in business and continue to buy cattle into the future. We need feed yards to make a profit, so they stay in business and continue to actively bid on feeder cattle turning them into fats for the packer to buy. We need the cow calf operators to make a profit so they keep producing calves to bid on.

The situation we see is much like my daughter’s basketball team. Two weeks ago they played five games and only won one game. In the four losses one player took two to three dozen shots per game and was a 13% shooter. In those losses the team passed the ball less than twenty times. The one game they won they passed the ball twice as much giving other girls on the team a chance to score, which they did.

All my life we’ve been fed a line of bull about trickle down. For those who don’t know what I am talking about I’ll explain. We’ve been told if we can raise demand the price of beef will go up. When the price of beef goes up packers will bid more on fats. When feed yards get paid more for fats they will bid more on feeders. I would think by now the last year and a half proves the trickledown theory is bogus. No one bids more on anything than they have to. If packers can buy cattle cheap, they will.

Back to my daughter’s team. The coach is the antitrust law, but he does nothing to instill discipline in the ball hog to get her to pass the ball. That means the other girls on the team have to adjust how they play. That one girl will put up all those shots and only make a few. That means there’s plenty of chances to get offensive rebounds and score. The other four players should focus on that instead of getting open.

This cattle deal is no different. We may not get the deal we want or expect from a packer, so we have to market cattle in a manner we can still generate positive cash flow. This means we may not be able to buy the replacement cattle we want to buy (fancy black weaned steers). We must buy replacement cattle that work (heifers, or feeder bulls with some color).

Here is where the trickle down does take place. When feed yards finally make the shift and quit buying the overvalued cattle, the cow calf guy will find himself needing to cut unnecessary costs, and become a least cost producer. They need to change their game. Maybe instead of making hay for the cows they let the cows graze that grass in the winter as one example.

Fourth grade basketball and the cattle biz ain't always fair. Rules aren’t always enforced. Thing is we still gotta figure out a way to play to win.

I agree the bid for fats is ridiculous. But remember this, Walmart didn’t get as big as they got by selling for more, they got that big by selling for less and doing a really great job of marketing.

A look at the markets

This week the break in value of gain remained in place around 600 pounds. It should be easy to make feeder to feeder trades on cattle under that weight. With southern markets being undervalued once again it would be advantageous to take advantage of that for replacement buys if selling feeders over 600 pounds in the plains. The best buy back for fats is the heavy feeder heifers.

I saw one female sale this week. On that auction a bred heifer (third trimester) was only worth a few hundred dollars more than a six weight feeder heifer. Heifer pairs with small calves at side were brought $600 more than bred heifers. To me that’s a huge mark up on that small calf since four weight on the same auction were bringing $750. The heifer pair was the top of the bell curve with cows losing about $100 of value per year of age.

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