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Seeing excitement in the cattle market

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Watch each Friday for Doug Ferguson's Market Intel blog on Beef Producer and BEEF magazine.
Good times are great news, but breaking out of a rut opens more opportunities for profit

Every sale has a story, and every week has some kind of story or theme that goes with it. This week two words that sum it up are excitement and gratitude.

Personally I am grateful to be writing this column again this week. I am even more grateful to have attended a couple auctions this week. I was terribly ill the last few weeks of December and the old saying “absence makes the heart fonder” is resonating with me right now.

I am not the only one practicing gratitude this week. At the sales I attended I noticed that more than usual, sellers were thanking the buyers.

While it was cold outside the feeder markets were heating things up in the stockyards. This caused something I haven’t seen in a few years; the cow calf crowd is excited. Time and again this week you would see them writing down the weights of the drafts of their cattle that were selling and the price. You’d then see the phone come out and they’d run the calculator.

Once they figured out how much money they were getting for their cattle they could hardly contain themselves. They were thrilled and everyone there knew it. Good for them. I know what it costs to run a cow in my area and what feeder prices have been. The last few years have been tough, so they were due for something good.

While I am happy for these folks and I am enjoying their excitement, it's my job on here every week to educate and share the solid marketing philosophy of sell/buy marketing. If these people had sell/buy skills the last few years wouldn’t have been so lean, there were opportunities to prosper.

Getting past status quo

A part of the status quo mindset is “win some, lose some”. They’ve lost a few and now they were due to win one, which they did. The status quo is a rut, and Zig Zigglar’s definition of a rut is a grave with both ends kicked out. The harsh reality of a rising market and higher cattle prices is that it only proves how many incompetent fools can make money based on dumb luck.

A person with solid marketing skills can generate positive cash flow no matter if the market goes up or down. This means interpreting the market and letting it dictate what we should do. The status quo has their mind made up and things will be done a certain way, and that’s that. This mindset leaves them fighting the market most years, which is a losing proposition, and every few years the market will bail them out.

The scenario I illustrated above is where statistics come from. In this case it’s the statistic of cow/calf operations only making a profit three years out of ten. At my marketing schools I teach that we are individuals and statistics have nothing to do with us. All a statistic tells us is what a group of people is thinking/how they’re behaving. This group thinking/behavior is called culture. This culture, these statistics are why it is necessary to break away from the status quo.

The buyers on the other hand were split into two groups. The first group, which was the minority, tried to buy them all. Type, quality, condition and even the health of the cattle didn’t seem to matter, they just bought them. The second group of buyers seemed content to let the first group buy them all at those prices. No one in the second group seemed upset they didn’t get anything bought.

A look at the markets

Just because the market is headed in a certain direction doesn’t mean all weights of cattle go in that direction at the same pace. While feeders were higher this week, some weights of feeders were slightly higher while others were quite a bit higher. This changed the relationships and Value of Gain between weights.

Even with these relationship changes there remains an abundance of profitable trades to be made. I ran some Cattle Squares this week and could still find trades that were making more than $100 per head. The thing is with the relationship changes there are some money losing trades in the spectrum now. This is why we need to look at the markets every week, and determine if the cattle in our inventory are over or undervalued to something else.

The VOG looks like a trough this week. It is high on flyweight calves then dips below Cost of Gain on the middle weight feeders and comes back up above COG again on the heavier feeder cattle.

The price of number one feeder cattle has changed their relationship to fats, making fats under-valued once again.

This week feeder bulls were only 10 back; unweaned cattle were 12 back; and replacement quality heifers caught a 7-15 dollar premium. Open replacements are greatly over-valued. For just a couple hundred dollars more we can buy bred ones.

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