Editor's note: Next week Doug Ferguson will be speaking all three days (Sept 14, 15 and 16) at Husker Harvest Days in Grand Island Nebraska. His marketing talk begins at 11:00 in the beef area located on the Northwest corner of the grounds. There are two other speakers as part of the program. Galen Erickson, professor of animal science, UNL, will cover optimizing cattle production with high feed costs. And Ann Marie Bosshamer, executive director of the Nebraska Beef Council, will provide insight on consumer trends.
I’m sure we have all driven past a pasture and thought to ourselves what a great looking piece of grass it is. After getting out of the pickup and walking through that pasture we discovered it really isn’t that great after all. The grass always looks greener on the other side of the fence, until we take a closer look at it.
Lately I have been hearing one common thing from people all over the country with greatly differing backgrounds. They are thinking of doing something different. I think that is great, after all it's been a reoccurring theme on this blog. This week let’s just take a moment and get a closer look at that greener grass.
With all the culling of cows many people are thinking the best play is to buy heifers and breed them. Then eventually sell them and make a pile of money. They are thinking the time right now is very similar to coming off the drought of 2012 and then the high female prices of 2014. I have thought the same thing myself. I am not going to make this move for two reasons.
First, I can only make decisions based off what the market is right now, I can’t see into the future. Right now the market signal is that there isn’t any appreciation value to be had in making bred heifers. There is a big difference between the value to me and the market value. If I were to keep and breed the heifers I already have I would have around $1,800 in them. The local market is telling me right now that bred heifers are worth $1,100.
The second reason I am not willing to breed heifers right now is I am a stocker/backgrounder. I have constant turnover which results in cash flow. If I were to keep heifers to breed, I’d own them much longer than usual. This would tie up cash and cut off the cash flow. Since I know I can make money turning stockers I’d have to put the opportunity cost against the bred heifers, bumping the $1,800 price even higher.
I have heard cow/calf people saying they are thinking of getting into stockers because it’s impossible to make money as a cow/calf operation. Stockers can make good money, for sure. Thing is you have to know how to market cattle.
It is not as simple as buy low, sell high. That is buy/sell marketing and has been proven not to work. Here’s an example: back in 2015 people bought five weight steers for $1,500. At the end of summer the cattle came back to town as eight weights and were worth $1,600. The sale barn and trucking will take $25 dollars out of that difference. This left $75 to pay all expenses and make a profit.
If we know how to execute sell/buy marketing the market drop in ’15 was better than Christmas, because we know how to ratchet down our inventory and make it cash flow like a dream. So we must know how to market cattle. I can help with that. I have a marketing school coming up in December mrcattlemaster.com/marketing-school/.
Factors for 'making the switch'
The cow/calf guys that have commented to me about switching to stockers are conventional type marketers, they have one calf crop to sell each year. When this is the case, I agree that you must hit the lottery every time. Again this comes down to marketing. Most years bred females five years old and younger are overvalued. Sell those overvalued mommas’ and replace with something undervalued. This can improve the balance sheet, gross margin, and cash flow. I said most years because right now the cow bell curve is flat.
Here is something else for you cow/calf guys to consider if you are thinking of switching part of your program over to stockers. When you wean your own calves you pretty much know what to expect. When you buy calves at a sale barn you do not know much about their background. You will eventually get to experience temperament and health issues you probably never heard of before. Be prepared for this. It is an expensive lesson to learn.
Before abandoning a cow calf enterprise we should ratchet down our questions. Is the marketing plan sound and as good as it can be? Is there a way to reduce overhead? Can we implement a better grazing program and reduce winter feeding costs? Would changing calving date help? After we ratchet all the way down and nothing seems to make enough of a difference then we ask if we should even have cows and calves
I am an advocate for changing things that are not working. I would caution giving things careful consideration. The grass isn’t greener on the other side of the fence. Reality is its greener where the cow peed on it.
View from the market
Feeder markets were mixed this week. With some weights selling higher and some lower it changed the Value of Gain. The highest VOG this week were on cattle weighing over 600 pounds. The VOG were still quite attractive on cattle under that weight. It is a weight gain business up to 900 pounds. This is what happened in the plains markets this week
In the South it was different. The VOG is high on flyweight cattle and keeps slipping lower as the cattle get heavier. Then it sky rockets for eight weights.
This week feeder bulls were only 10 back and replacement quality heifers caught a $7 premium.