Examining cattle trades for profit

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Watch each Friday for Doug Ferguson's Market Intel blog on Beef Producer and BEEF magazine.
The market always offers opportunities, and they come in many forms

The trade week was a brief one, and since I follow the market I’ll be brief this week as well

Yesterday I was busy making slides for my December marketing school. I wanted to illustrate what opportunities look like while highlighting the cow/calf side. Back in July bred cows of any age were selling for weigh up price. Assuming we had some extra grass, and the money to buy these cows what could we have done with them?

This week the cow sales were better than last weeks. If we bought the young fall bred cows a few months ago, two things happened to her value wise. Her intrinsic value dropped, due to the slaughter value dropping, but her actual value went up. It is her actual value that pays us, and the good news is it went up a lot. This week as a pair she is worth $900 more than five months ago.

In my example I point out there is value to capture by replacing her with an open heifer and developing and breeding it. There is value to capture by replacing her with a later-calving 5 year old cow. Or there is a big pile of cash to capture by replacing her with a broken mouth bred cow. This is only three opportunities, there are more.

Understanding this cattle trade

Why would we sell a young pair and replace with a broken mouth bred cow? The older cow is old for a reason, she knows what she’s doing and has done it. She also sold for $75 over the scale so she is pretty much fully depreciated. When I compared her Intrinsic Value to her Actual Value, they were almost equal.

Buying this old broken mouth bred cow also leaves us with more than enough cash to buy the open replacement heifer as well. This will still leave a little cash left over to pay their expenses for the next few months.

In the next few months we do not know what will happen. Maybe we hang on to both these animals and reevaluate at the end of summer. Maybe we keep the pair and sell the heifer as an over-valued feeder or replacement heifer. Or we calve the old cow and resell the pair, keeping the heifer and possibly buying another heifer to breed, or we buy a feeder steer.

I do not know what the future will bring except this, there will be opportunities to utilize these two animals to prosper ourselves. And that is something to be thankful for

Here’s something worth pointing out. This trade sequence would not have been able to start if we didn’t have money and feed for the virgin buy of the bred fall calving cow we bought in July. Not having pen space, feed, or money is how we define running at capacity. We could do this virgin buy because we were not at capacity. I am not saying we should or should not be at capacity, that's up to the individual. My job here is to highlight opportunities to prosper ourselves, and the only reason this one happened is because we were not at capacity.

In real life I took advantage of buying some light weight calves and adding value to them, and the feeder market has offered just as many opportunities as the cow market has, just that the cow market has much bigger margins.

Market opportunities

Just for giggles I wanted to compare breeding stock to feeders. With corn stalks available now, and the boost in feeder calf prices, cows quickly went from under-valued to over-valued. Feeder cattle have been mostly over-valued to fats for a long time now it seems. I am comparing Nebraska prices for bred cows and feeder steers. Bred cows are over-valued to feeder steers.

I also have a slide that illustrates that we can sell any weight in the feeder spectrum between 400-pounds and 1000-pounds and replace it at a profit. The same slide illustrates that any weight between 300-pounds and 800-pounds is a profitable buy back. This is how liquid and prosperous the markets are currently.

The market is flaunting how generous it is at the very time of year we are being thankful. Thing is we should always be grateful because the market provides opportunities all year round

TAGS: Beef Quality
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