“A new chapter” is a phrase I’ve heard several times over the past week. Some people I spoke to had just left breeding and were trying to figure out what the next chapter would be like. Other people I spoke to were starting a new chapter in their lives and part of that new chapter is getting into the livestock business.
If we look at other types of businesses, people come in and out all the time and we consider that to be normal. When you look at the number of cattle farms we lose every year, we think it’s tragic. On a personal level, I agree that it is tragic and I have witnessed the pain and embarrassment these people have felt. When I zoom out and focus on the industry as a whole, people coming in and out is just a natural cycle of business.
Our success in this endeavor will be determined by the successful trades we will string together over decades of business. Sell/buy marketing, done in a certain way, will ensure that we generate positive cash flow. This can be done by marketing fats and replacing them with feeders. This can be done in a storer/back grounder operation by selling one group and replacing it with another group. And this can be done in two ways at the cow/calf level.
One way is to sell females and replace them with other females. The other is to sell the calves that have been raised and replace them with the next crop of calves. We all think we already do, but remember I wrote “sell/buy done a certain way”
Statistics can tell the story
I am one of those who will pay attention to statistics. Statistics tell us what the group paradigm is. Look at this, 2% of cattle producers calving females do so on farms with more than 500 head. They produce 16 to 17% of the calves. And 57% of cattle farms calving females do so with nineteen or fewer females. This group of 57% produces 12 to 13% of the calves.
All of these little hobby farmers put together make as big a contribution to the industry as the big boys put together. It makes us realize that we need operations of all sizes.
Producers of 100 to 500 head represent 7 to 8% of these calving cows and produce 35% of the calves. When we look at trends, this is the group that is decreasing in size. One thing is clear, they are not moving up into the 500+ head group as it remains stable. What’s unclear is whether these people liquidate and finish, or downsize and fall into the 50-99 lead group.
Hobby vs Big Ops
While I’m pretty sure what we’re told about having fewer and fewer cattle farms is correct, I see it in my home area. I also saw another trend, there are more and more of these types of hobby farmers appearing. We never seem to hear how many of them enter the business each year. We just hear how many people leave the company each year. I’m sure there must be high turnover in this group since they make up 57% of cow calving operations.
When the people I spoke to told me they were out and starting a new chapter, they just loaded up the cattle and took them to a sales barn, and just like that, it was over. People who called me about getting into the business wanted to know how to find the best value for money or ask me what kind of cows they should buy. In reality I bet they saw a cow they liked and just bid until they got it and just like that they were in the business.
I made this sound so simple, didn’t I? I know it’s not that easy and so are you. Here’s what I mean, if the majority of people leaving the business are over 100 head and we somehow manage to maintain cattle numbers, that would mean there’s more of people entering and leaving. Maybe it’s that simple? So the next question is: Are they profitable?
Livestock Market Update
Feeder markets were just weird this week. I can’t identify a certain weight class that had a high gain value (VOG) because it changed drastically from sale to sale. Winter storms and cancellations had a lot to do with it. Cattle relationships can change a lot if a buyer shows up or doesn’t show up. The one constant is that heavy feeders are always great redemption against fat
Feeder bulls had a 4 to 20 lag and unweaned calves had a 4 to 23 lag.
On the women’s side, when we look at the prices paid in the monthly promotions that took place this month and compare them to this stockyard’s sale last month, it’s clear that women’s prices have gone up. Sales also remained in line with last week’s trend that young women were the most overvalued. The big difference when it comes to age is that the price drops sharply if the cow is over 5 years old. The price plunges sharply again when she begins to lose a tooth.
A majority of females I have seen selling this week have sold above their intrinsic value (IV). The only exception to this was the broken mouth cows which are due to arrive within the next two months.
Females calving in summer sold above their IV whatever their age. In fact, these females sold for considerably more during their IV than winter calving cows. But winter calving cows had a higher selling price.
Let me clarify this. IV is the value of the cow to me, the producer. This value can vary significantly from operation to operation depending on the cost of keeping a cow. Her real value is exactly what it sounds like, that’s what she sold in the ring.
Here’s why relationships are so important. Winter calves had higher AV and IV. However, summer calvings had a wider gap between AV and IV.
So if you’re tired of dealing with snow drifts and don’t want to calve in them, the game is to sell your winter calves and buy back your summer calves. You will sell value in the market, but you will be paid more than it is worth.
What it looks like is that we are selling an animal with a higher IV than the one we are buying, so we are selling value in the market. We are paid more for this value than it is worth because the difference in AV is greater than the difference in IV. We could generate more cash flow, much more, with this exchange than we ever could by simply selling calves. We also get to calve during longer daylight hours and shirt sleeves.
If you want to learn more about selling/buying marketing that works, I have a school coming up at the end of February Marketing School – Mr. Cattlemaster The school is already half full. If you have any questions, do not hesitate to contact me.
My wife has set up a Facebook page for those of you who do, you can also follow what’s going on there. Just search for Mr. CattleMaster
Also, don’t forget to nominate someone, or yourself, for the Livestock Marketing DVD set that I will be giving away. Details here Tackling a Life-Changing Moment (beefmagazine.com) Nomination time will end on January 31, which will soon be here.
The opinions of Doug Ferguson are not necessarily those of beefmagazine.com or Farm Progress.