The solution is to sell cattle that have higher value of gain than your cost of gain.
It was an interesting week in the market. What I find even more interesting is how people can get so emotional about such things. Cattle marketing is simple math, and that should take the emotion out of things since math is fundamental and never changes.
That said, it is hard to override an old paradigm. This week the paradigms that hold onto conventional wisdom got smacked in the face.
Conventional wisdom says that it pays more to wean a bigger calf. This week I watched an auction that had a good amount of bawling calves sprinkled throughout the run of different weights. While the bigger calves did get more dollars per head, it wasn’t much more. When I calculated the value of that gain it proved what I already knew: The value of gain wasn’t all that great. From the smallest bawler to the heaviest calf, the value of gain was 45 cents.
Can you put the weight on for less than that? The value of gain between some of the other weights was less than 30 cents. I am pretty sure it’s costing more than that to put the weight on. My point is, those extra pounds were actually costing the producer money.
A commentator on the local radio was going on and on about the “rally” in eight-weights at a local sale barn this week. I pulled up the market report and those eight-weights had the lowest value of gain compared with all other weights. At that barn seven- and eight-weights were the only weights that were higher this week, and yet the eight-weights were still undervalued to the lighter feeders, and also undervalued compared with fats. So again convention wisdom got smacked. Just because they were higher didn’t mean that a person was going to profit from selling them.
I have had a few people ask me how this blog is being received by people since I talk a lot about turning cattle quicker instead of holding them and putting more weight on them. I just outlined above the math isn’t adding up by the long-held convention for adding weight to create value.
Here’s the thing, there are three components to maximizing profit, and one is turnover. If you owned a hardware store would you make more money if you were open two days a year, or 365 days a year? I have a friend who used to work in the parts department at a dealership, and he told me if a part didn’t turn over at least every 30 days they quit stocking it. I’m not saying we should trade our stocker cattle every month. What I’m saying is that we need to watch the value of the gain, and price relationships to prevent ourselves from getting cattle too big and becoming undervalued at times.
Next week is the last full week of auctions before some barns will go to their summer schedule. One thing I find interesting and am curious to see how it pans out is some barns are adding a special female sale to the schedule in the middle of summer. This typically doesn’t happen. There obviously is some interest in selling bred cows and pairs at that time, but will there be much buyer interest?