This week I took some time to read some articles about cattle marketing just to see what the other side is thinking at the moment. To me that is the only value they have. Three of them stood out to me
The first, and this one really caught my eye, was about some dude now serving time for gambling away his cattle loan. I had to laugh and my knee jerk reaction was that many others will probably end up serving time with him because if you aren’t implementing sell/buy marketing you are gambling as well. Think of a roulette wheel. Half the numbers are red and the other half black. The cattle market goes up half the time and down half the time. If you need the market to go up so you can make some money, you are gambling it’s called betting on the come. Have you paid a margin call? Same thing.
The second was a follow up to an article I poked at on here before where the author said we can look at future delivery contracts to see what the price of cattle will be for that delivery month. Let’s step back and relook at this. The seller sells the cattle then at that price because he thinks the price will go down. The buyer buys them at that time because he thinks the price will go up. All we did is establish that we agree that the sell price will not be the price of cattle in the future, so why does this specialist think that is an indicator of future price?
His article this time around started to converge with reality. It’s how that always happens after a prediction. Then he went into trends. Okay now we have two silly things going on here. And I’ll explain.
First, I want you to imagine an hour glass. The top half of the glass represents the future, the middle part of the glass where the sand passes through is the present, and the bottom half is the past. Now we are going to cover the top half of the glass so we can’t see it. That is how real life works, we can’t see the future. We live in the middle part that represents the present, so that is the part we must deal with. The bottom half representing the past is over and done.
Thing is we remember the past and will go back and revisit it, connecting the dots, hoping it will repeat itself. This is where cycles come in. I am one that believes cycles exist. If we can capitalize on them, in the present, then that’s great. But looking forward to them, trying to connect dots we can’t see yet, and planning for one is gambling. And with all the black swan events of the past few years I think it’s a risky bet.
Looking at all sides of the trade
The last article, and the one that really tells us where people’s minds are at is the author that wrote “now may be the best chance to take margin from the packer”. How do you take someone else’s margin? One of the more popular articles I wrote was the one about marketing in a way to get your share. That’s what sell/buy can accomplish. With sell/buy we generate our positive cash flow on the buy back. We are price takers when we sell, so there is not much we can do about that but we can control the buy simply by stopping bidding.
We all do sell/buy trades it’s just most of us don’t realize it and therefore are not good at it. If our margin is set on the replacement buy is it the packer’s fault we bid too much for replacement cattle? If we are in business to take margins from other businesses we do business with are we going to somehow take margins from the feed company, or the pharmaceutical company?
Here’s the thing about that article, it was written in complete ignorance of how marketing works. It was written with a paradigm of limitation and lack. This is the only column that's written with the profit motive in mind. There is an overabundance of those other articles. Since I am greatly out-numbered and the other side’s message is stronger than mine it’s simple to tell the culture and mindset of the cattle biz.
Now I said it was ignorant, not stupid. Let’s be clear on that. We can fix ignorant with a little education and some marketing skill. We can’t fix that other one. This is why people like me and Wally Olson teach marketing schools, and why there is in fact a need for them. The greatest thing anyone can do for another person is to help them reach a higher level of awareness.
Attitude and fact
Pay attention to this part, it may be the most important line I’ve written: Attitude is more important than fact.
Attitude is a combination of our thoughts, feelings, and our actions. It starts with the thought, and our actions dictate our results. So now we know what attitude really is
This other author thinks we need to take from others. That is based on lack and limitation. He is set to fight the market. I look at it differently. I will utilize the market as a wonderful tool to get my share. I will compliment by selling my over-valued cattle. They are over-valued because that is what buyers want so I will help them by selling them what they want. I then help the market some more by buying under-valued cattle, again under-valued because there is little interest in buying them.
We have two different mindsets, two different philosophies. Attitude is more important than fact. Here’s what that looks like
Fact: the packer bid 124-126 in Nebraska this week.
His attitude: That’s not good enough. We need to hold out and price gouge these rotten companies. Or he may think something like “I got took again. Another pen at a loss for me and another windfall for the packer.”
My attitude: Ok I can make that work. I can squeeze a margin out of that by replacing with heavy feeder heifers based on what they’ve been selling for. Cool man, let’s do the trade
That other guy, who we don’t even know if he owns any cattle, is a hero in this industry. His article will get more likes and shares than this one will, because it resonates with people. But his attitude will cause him to go broke.
At my marketing school I share stories of how flipping my attitude has helped make me money. Attitude is more important than fact.
A look at the markets
This week I got to see a good enough amount of females sell to be able to trend. A least-cost producer can easily capture appreciation value by breeding open replacement heifers. If this is not you then you will have more in those girls than they’re worth.
First-calf heifers to 6 year old bred cows took a depreciation hit of $60-$80 per year of age. From 6 years old and up the depreciation jumps to $100-$120 per year of age. A middle of the road weigh-up has the same value as a five weight heifer right now. The cow bell curve has more curve in it than we’ve seen for some time
The feeder market has shifted some this week. Buyers seem to have realized that five weights were a bit over valued and have shifted to either buying four weights or six weights. This is pretty region specific so you should check your local market to be sure what’s going on there (you should do that every week anyway). Depending on which way buyers shifted also shifts the Value of Gain on cattle between 4-6 hundred pounds.
Feeders over 600-pounds still have an attractive value of gain up to 900-pounds. Light-weight heifers are taking a big roll back from light-weight steers setting them up to appreciate more.
Geographical spreads are a big deal right now. Southern markets are under-valued. Feeder bulls were 12-35 back, and replacement quality heifers caught a 5 dollar premium. The discount for unweaned cattle was strongly dependent on location and size of the group. The discount could be 4-14 dollars.