Take a closer look at your cattle buying approach

TAGS: Beef
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Watch each Friday for Doug Ferguson's Market Intel blog on Beef Producer and BEEF magazine.
Aiming for longevity, or 'higher quality' feeders may not be the best approach for long-term success

Last week I read a couple articles that said it’s worth it to pay more for females that will be in the herd a long time, or for feeders of higher quality. I would really like to spend some time with these authors and pick their brains so that I may learn to identify those cattle. After what I saw this week I am certain other people would like to learn that as well.

For the second week in a row there were a ton of cull cows at auctions. I’m sure the weather had a lot to do with it, but I also heard stories about dystocia being a big issue. There were also a lot of cows that failed to breed. We may as well recognize this failure to breed back is a trend. We had a ton of open cows now for over a year due to this.

How on earth do you spot a group of females and determine they are worth more based on a guess at their longevity? You would think with the rate cows fall out of programs that we would be over the ideal of a cow “having 10 years to pay for herself”. We need to focus on things like cash flow, capturing value and deflecting depreciation. Not hoping to sap all the good out of a cow until she doesn’t owe us anything.

This week it was clear to everyone in the room who was there to buy replacement heifers. Premiums were 4-10 dollars. There has been a high demand for open replacements for well over a month now. There is only $600 worth of appreciation between the open and bred heifer. Can we carry that female for 10-12 month for less than that? Some can but most of us cannot. For a lot of people, it would be cheaper to buy bred heifers than try to make bred heifers.

Evaluating true cow value

The female market appreciates a tad more with second to fourth-calving cows bringing roughly $100 more than bred heifers. From there they depreciate at a rate of $140 per year. This $140 is an expense that must be added to that cow’s calf each year. When I couple that with the cost to carry a cow for a year, and compare it to what has been on my bidder cards now for over a year it's clear that there is no way the cow is paying her rent, her depreciation, and making a profit.

It's clear that paying for herself over 10 years is a losing strategy right now. I know there are some that think she pays her way during that time and when she is sold as a cull is when we take our profit. 10 years is a long time to wait for a pay day, especially when that pay day is less than $100 per year. With the rate of cows falling out before 10 years, the probability is she’ll skip the tab on you.

Now how about paying more for high quality feeder cattle. Last fall I did just that at one auction. At that same auction I also bought some rougher quality cattle. The fancy cattle weighed 503-pounds when I bought them, and the rough ones weighed 446-pounds. I sold and shipped the cattle one week apart from each other and the rougher 4 weight bunch outweighed the fancy bunch. They had a much cheaper cost of gain and made me more money.

It makes no sense to burn through your profit paying a premium for fancy cattle, or perceived longevity. Scales don’t measure fancy or longevity.

Market insight

This week in the feeder auctions the value of gain was highest on flyweight cattle. It gets squashed to almost nothing when they get around 600-pounds. Then the VOG goes back up again on the heavier weights. It just barely flirts with coming up to match cost of gain. With this squeeze it is not a weight gain business, so we must buy cattle we can add value to.

This week feeder bulls were 25 back. Southern markets were under-valued to plains markets. Fleshy cattle were docked 4-10. This is a double-edged sword folks. By getting cattle to fleshy we are devaluing them, and we are devaluing feed. With the VOG being so tight we just can’t afford to do this.

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