Beef Magazine is part of the Informa Markets Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Creating value in the market

vectorbomb-ThinkstockPhotos artwork of cowboy riding market
Watch each Friday for Doug Ferguson's Market Intel blog on Beef Producer and BEEF magazine.
Understanding cattle trading opportunities can put more money in your pocket, then what?

Last week I invited my readers to send me their stories about giving. I expected to receive a few so I was surprised that I didn’t receive any. Another thing that surprised me was that I did receive emails from people asking how they could donate to the Backpack Program here or they were wanting more information on how to start one in their community. I really do have the best readers and that is no joke.

Ann Barnhard would refer to money as a Fungible Proxy. Fungible is the ability of a good or asset to be readily interchanged for another of like kind. To put it another way a $100 bill can be broken into 100 ones, 10 tens, 5 twenties, 2 fifties. Proxy is a figure that can be used to represent the value of something in a calculation.

If you have ten, ten dollar bills in your pocket what do you have? Most people would answer that they have one hundred dollars. That would not be wrong, but what if I said you have ten pieces of paper with ink on them. I would not be wrong either. Two different answers to describe the same thing and both are correct. That is how perception works

If we just carry these ten dollar bills around in our pocket everyday they are worthless. They really are just pieces of paper with ink on them. That is until we decide to do something with them. Then it is the idea of money that gives them value. We buy a widget from another person and that person willingly receives our money because of the idea of what those pieces of paper represent.

We both just executed a sell/buy transaction. We sold that person our money and bought his widget with it. That person sold us their widget and bought our money with it. The idea of buying and selling money confuses people. If we go to a sale barn and unload cattle there, and the cattle are sold we leave with a piece of paper that represents money, this time it is in the form of a check. We sold our cattle and bought money. If we did not replace the cattle we sold with money or something of equal value we would stop taking our cattle to the sale barn. This is why I am convinced we bought money with the cattle we sold. Cattle left our inventory and money took their place in our inventory.

Putting cash to work

Money should be spent to buy things that have more value to us otherwise it makes little sense to spend it. We bought the widget from that person because we realize we can do something with it to get some value out of it. Maybe the widget we bought gets bigger, or maybe our widget replicates itself. Some cattle are for gaining weight and some are for having babies.

The market will signal to us that it would like to have the production from our widget back, this means the production from our widget is over-valued. If we sell it when it's over-valued our ratio of money to our production will favor money. We then go back to the person who sold us the first widget and buy more.

The paper in our pocket did nothing until we spent it. Once it was circulated, in an intentional manner, it began to multiply. If we still were carrying it around in our pocket and never bought the first widget, we would still just have the 10 pieces of paper with ink on them. During the time we continued to walk around with them in our pocket the people at the mint printed more of them and dumped them into circulation. This reduces the purchasing power of the money we’ve been carrying around. Now when we cross paths with the person selling the widgets we can no longer buy one with our $100. Because we hoarded our money all that time we effectively took an inventory loss.

To be clear I did not suggest just going out and spending money, this behavior gets people into trouble. I wrote to be intentional with your money and buy things that have more value to us.

We cannot control what the market does. We can control what we have in our inventory. We could have chosen to hold our money in our inventory and in this example its value went down. Or we could’ve traded it out of our inventory and replaced it with a widget that either got bigger or replicated itself. Either way in this example it increased in value. Bottom line is a decision was made on what to have in inventory. The decision must be an intelligent one, based on the understanding of the value of things and the value relationships between those things. This is what I call market literacy.

We have another marketing school this weekend. If you haven’t done so already swing by our Mrcattlemaster Facebook page to see some updates.

A view from the cattle market

This week we’ve some auctions that were slightly higher to 13 higher. Cattle under 500-pounds by far had the highest Value of Gain, and it was well above the Cost of Gain. On cattle over 500-pounds the VOG tapers way off falling below COG, with the occasional spike in VOG which is around cattle weighing 800-pounds. Flyweight steers have a better VOG than flyweight heifers, but as the cattle get heavier the girls have a better VOG.

The market is signaling that it is and isn’t a weight gain business at the same time. It's paying to put weight on cattle up to a point if you are a stocker/backgrounder operation. Some weights, sexes and types of cattle are over-valued to fats while others are not. The ones that are under-valued to fats have a really attractive profit margin attached to them. The market literacy I mentioned above is key to navigating this.

This week feeder bulls were 20 back, unweaned cattle were 10-17 back, and replacement quality heifers caught an 8 dollar premium.

Hide comments
account-default-image

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish