This week feeder bulls were up to 30 back and unweaned calves were up to 25 back.

If I have a dollar and you have a dollar, and we each give each our dollar, we still each have a dollar. If I have an idea and you have an idea, and we share our ideas, then we each have two ideas. These ideas we have in our heads will influence what we do. So, we must be careful who we listen to and we should challenge these ideas in our own minds.

We have all been at an auction and we see someone buy some cattle and our first thought is, “good luck with that” or “that will never work.” When a commodity is sold an idea was sold.

Selling a steer

Today so many commodities have been sold over time we do not really think about what we are going to do with them. We just intrinsically know. If a steer is sold, we just know it will be fed to the terminus and then will be broken down into smaller parts for consumption.

Why some people view the price the steer sold for differently is based on a couple things. One is perception, which is controlled by the paradigm. I have written before on here that the paradigm gets us our results. Many people have the paradigm of lack and loss, so they lose money feeding cattle. This loss just reinforces that paradigm, and they say to themselves, "I knew it. I just knew I’d lose money."

The other thing that influences the price of the commodity sold is the idea of what can be done with it, and for how much. Sticking with the steer example, we know it is going to be fed, but what will it cost to feed him out?

The Cost of Gains

In my conversations, I am once again hearing Cost of Gains (COG) that are wide ranging. Keep that in mind. What happens is people look at the steer and his weight. They think he will finish at a predetermined weight target. Some people still think finished weight is 1250 pounds, some think they have to weigh over 1600 pounds. So, there we have another wide range. The producer then predicts the price they hope to sell him for.

Hope does not equal a marketing strategy

Hope is not a marketing strategy. We have a term for a hopeful marketing strategy, we call them break evens.

The scenario above illustrates why our industry is so fascinated with break evens. It also illustrates why we are so desperate for bull markets, we need the market to go up to bail us out. The market goes up half the time and down half the time, and the result is feeding cattle is a break-even proposition.

What I just described is buy/sell marketing. It is what most people do. It is so engrained into our paradigms now that some people think they are doing the sell/buy that I teach and practice when in reality they are still doing buy/sell thinking.

Buy/sell is when we buy the steer, we hang onto it and feed it for a period of time, and then we resell it. The strategy is to hopefully sell it for more than we have in it, hence the break even, and if there is any money left over that is considered profit.

The risk

Since we need the market to go up, to get us above our break even, our exposure to risk is the time we own the cattle.

With legit sell/buy we can generate positive cash flow no matter the market direction. It is all based off understanding our cost, and how it affects the price relationships between the animals we are comparing.

Within a 120 seconds worth of doing some algebra we can determine these relationships and know the maximum amount we can bid on replacement steers and still hit our profit target, since it is figured into our cost structure. That is known as the Efficient Market Value. There is no guessing and no hoping the market will bail us out.

Since sell/buy is a real time cash flow reckoning, it tells us what we can or can’t do right now in order to generate positive cash flow and prosper ourselves. With Sell/Buy our exposure to risk is the time between the sell and the buy. We have a lot of control over this because we can keep it very short if we chose to.

The prices cattle sell for in the ring is the market. The Efficient Market Value is our market. These prices we can pay and still hit our profit target may be lower than the market, making those cattle over-valued to us. Our market may be higher than the market, making those cattle under-valued to us.

When we see a set of cattle sell for a price we don’t think will work maybe we should question how it would work instead of judging. Maybe the person that just bought them has solid sell/buy skills and just locked in a profitable buy back. But in all honesty, there are not many intentional sell/buy marketers out there so you may just be watching a gambler bet on the come, hoping the market will bail him out.

Cattle Marketing DVD Contest

Don’t forget to nominate someone for the Cornerstone Cattle Marketing DVD set I am giving away.

Nominate some young person, under the age of 30, that you think could really use this outstanding gift. Do not be afraid to nominate yourself. Just be under the age of 30 and have passion and a burning desire to be in the cattle business.

Email your nominations to [email protected]

In the subject line of your email write: DVD Contest Nomination

In the email provide the Name and Location of your nominee.

Entries close on January 31.

The winner will be announced on this blog Feb. 3.

Also Don’t forget that I have a Sell/Buy Marketing school coming up at the end of February. See my website for more details.

Cattle Market Update

It is a good thing that I am a sell/buy marketer because I can’t guess the market very well. This week proved that. I really thought feeder cattle would be lower since many feed yards are dealing with an abundance of snow and mud, but prices hung in there and stayed strong this week. The Value of Gain fluctuated a bit once again from one sale to another, once again but it is definitely stabilizing and getting more steady when comparing sales to each other.

Most weight classes, for both sexes, had a VOG that will cover most of the COGs I have been hearing about. In a way this suggests that these higher COG are intrinsically being factored into the market. Do not take that as me saying that we can get a bit lazy and don’t need to pay close attention to managing costs, knowing our COG and paying attention to VOG. The opposite would hold true, we need to know these numbers and manage them the best we can because they are required for market literacy, which is our biggest advantage.

This week feeder bulls were up to 30 back and unweaned calves were up to 25 back.

I want to conclude with this thought. There are profitable buy backs right now against fats and have been for the last year. Two years ago, I didn’t mention fats much on this column because most of the feeder cattle were over-valued to them week after week. ­­­­­­­­­­­­­­­­­Right now there are good feeder to feeder trades to be made as well. There are also good breeding stock trades that are possible.

Layoffs have been in the headlines lately. The government can’t print cattle. Robert Kiyosaki, author of “Rich Dad Poor Dad” defines a liability as something that takes money out of your pocket and an asset as something that makes you money. If you are marketing cattle with legit sell/buy marketing you have a wonderful tangible asset. There is no shortage of opportunity in the cattle business. Opportunity seems to be getting short in other places.

The opinions of Doug Ferguson are not necessarily those of beefmagazine.com or Farm Progress.