By now I am sure you all have been exposed to the talking point of the new great wave of prosperity coming to the cattle business. I even heard one market analysist state we are scrambling to buy up females. I heard that on a podcast while changing the oil in a tractor and I laughed out loud. Podcasts have become the fake news of the cattle industry. I do not hold the hosts responsible for the fibs their guests say.
There is no way the host could possibly have enough specialized knowledge about the subject or the other person’s background. The thing is a quick glance at just about any market report would tell you that just isn’t happening. These 20- to 40-dollar roll backs on 5 -weights is clear, no one is scrambling to buy ‘em. I do thank them both for the comic relief while I was doing a job I do not like to do
People keep asking me if I really don’t believe the female market will explode. It is that time of year that the paid guessers make their predictions for the coming year making this a trendy topic. I do think the market will go up. With as many people as there are saying this stuff it will become a self-fulfilling prophesy. However, I do not think it will be the get rich quick scheme the guessers think it will be, and for two reasons.
First, the fences around some places that have always had cows are gone. Many of those fences were torn up this year, and have not been replaced.
Second, the chatter I heard this week at the female sales I was at. Interest rates seem to be holding some people back. Most cow calf people seem to want to make around $100 per head per head.
To be clear they want to try to sell a calf for $100 more than it costs them to run a cow for a year. When I pencil that against what I saw good cows sell for that interest payment is $100. If I put it against what I sell bred heifers for the interest payment is $150. Right now, the wave of greed is still born, give it time and it will likely come to life.
The female sales I took in were in farmer country. The guys buying the sharp looking over-valued stock were wearing seed corn swag. Given the persistent dry conditions it is true, farmers are the most optimistic people on earth. There were not many people at these sales. The bred heifers sold first and after that was done the crowd thinned out. It was just way too quiet for a female sale.
Some people think you can get a “feel” for the market by looking at market reports. Most of those reports are just a smoothed-out data set. Every auction has a story. A market report won’t tell you the things I just described. If you look at one and think you should sell some cows based off the data set, you may get unpleasantly surprised because you didn’t sell the right type of cows that fit the narrative. It is plain ignorance to think you can get a feel for the market by looking at a report.
Charting the female market
Since I have been teaching marketing schools every couple months this year I have slides of the general state of the female market during the same period. These slides illustrate that the female market is more volatile than the feeder market. Since it was a farmer crowd driving the market this week, they created a new wave. The females they were interested in had to have a certain look. They also had to be done calving before the planter/sprayer is going to be in operation. Then age became a factor.
So, if a female was going to calve in the desired window and was the right kind she was going to sell over her Intrinsic Value and the younger she was the more she sold over her IV. This crowd of farmer-buyers made the market over-valued for these mommas. When you buy something you want you will end up paying a premium.
The later-calving females sold slightly over to slightly under their IV.
Now given the cost of running a cow for a year and the value of the calf at weaning time the margin isn’t worthy of bragging rights. This suggests the bulk of a cow/calf operation’s income would come from trading some cows. Given the state of the female market I just described it would be simple for a person with market literacy to interpret what is going on and prosper handsomely from it.
One big move to consider in the female market is these under-valued heifer calves. Compared to the fancy, fleshy bred heifers that weighed over 1200 pounds there is a huge value capture there. Compared to the bred heifers that weighed around 1,050 pounds a decision has to made regarding resource management.
At the prices for cattle and the cost (per year) of running and breeding these open heifers in Nebraska, the breds were $150 more than what it would cost to make an open heifer into a bred heifer. Time value, feed base, production lag, cash flow, interest rates, all begin to trickle in here. Yet, simple data punching says, breed the heifer.
When we look at the general state of the feeder market the Value of Gain is signaling it is a weight gain business. The Best VOG were on fly weight calves and heavy feeders. Feed yards are making it clear they are willing to pay for weight. These VOGs are setting up a fantastic environment to do some profitable feeder-to-feeder trades.
Cattle market view
This week unweaned calves were up to 10 back; feeder bulls were up to 40 back. There are also some huge geographical spreads in play right now. Some spreads are 30- to 50-bucks! When I write about these under-valued buying opportunities one must take an honest assessment of their capabilities.
I have received too many phone calls in recent weeks that sound similar to each other. Just because you may have gone to a stockmanship seminar doesn’t mean you are ready to handle these. Some of these instructors have never handled these kinds of long-haul high-risk calves and therefore have no experience to draw upon and have no way of teaching or preparing you to handle them. If you have the skill to handle these cattle you stand to profit handsomely given the rollbacks and spreads coupled with the VOG right now. Just be honest with yourself.
The opinions of Doug Ferguson are not necessarily those of beefmagazine.com or Farm Progress.
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