It's midway through the year I find it entertaining to look back and see just how well the market predictions from the beginning of the year are holding up. We have already seen some of the paid guessers suffer from market anxiety and converge their guesses to fit the current reality of the situation. While others left their predictions a little more open for interpretation.

When we were told we haven’t seen nothing yet, as far as price level, they seem to have gotten that right.

Market variables

Intrinsic value has changed in a couple of ways. It is obviously higher since it is directly tied to price. Since input costs have risen that has played its part to hold it down a bit. While change in Actual Value has risen steadily for all ages of cows IV varies by age. Bred heifers have seen the smallest increase in IV while cows over 8 years old have seen an increase that is double what bred heifers have experienced.

Now only if they would have told us all where to place our bets exactly, instead of painting such a wide brush stroke. If a producer is one of those who is not a sell/buy practitioner and is stroking their lucky rabbits foot hoping the market bails them out they are finding out that keeping the rabbit’s foot that got caught in the trap wasn’t a lucky foot for the rabbit and it isn’t lucky for the producer either.

If a producer bought bred heifers and was to resell them as pairs this week, they would recover their costs and that is all. If a producer bought the cows over eight years old and resold them as pairs they are grinning ear to ear. If only there was a way to tell what to buy back then. Legit sell/buy marketers realized back then that older age cows were the most under-valued. Even though they advanced themselves the most as pairs, the older bred cows are still the only bred cows selling under their IV.

Cattle price relationships

While everyone has their pom poms out about the high prices lets examine a relationship. If a producer were to sell under-valued pairs out of cows that are over eight years old (even though they advanced the most they are still undervalued) and that producer bought back the old under-valued older bred cows they would have pulled off a great trade. All while the producer who bought the 3- and 4-year-old breds that are in high demand would have executed a losing trade if that producer sold pairs of the same age. Some people laugh at the guy who sells and buys that old, depreciated junk. Thing is, that guy is running circles around everyone else as far as profitability goes. Profit is all about relationships not absolute price level.

There is another price relationship this week that is fire. This one is like real estate: location matters. Using fat price in Nebraska and comparing it to feeder prices there is a huge Return on Gain (ROG) if buying back heavy feeders south of I70. It is a losing trade if buying back heavy feeders north of I80. The geographical spread of buying south of I70 is the largest ROG for fats this year. ROG is the ratio of dollars to pounds on a swap.

Like I said some people are excited about the high prices. Others are starting to figure out that price level is not what matters. Some people bought very over-valued stockers and are figuring out that if they are still trying the failed method of calculating breakevens that they are in fact not breaking even. If they knew how to calculate ROG they would have never bought those cattle to begin with.

Another relationship that experienced a huge shift is hay. With new-crop hay being harvested and cattle out to pasture, demand has plummeted. This has reopened opportunities to do some sell/buy trades with hay. Crop year and packaging (round or small square) has a lot to do with relationship value.

Cattle marketing is a daily task

Last week was the World Livestock Auctioneer Championship. During the interview process, many of the contestants said they wish people knew that livestock marketing s a 365-day-a-year task. I am going to expand on that a bit.

When we are engaged with the market every day, even if that means all we did was look at a market report, we put ourselves in a place to respond to the market. The market is usually very direct about what it wants and doesn’t want. This may be a discount for selling strip and ship calves, or some weight of cattle have an extremely high Value of Gain while other weights may be a leapfrog.

If we are engaged with the market we can respond, which means we are in control of our decisions. When we react that means we are giving outside forces and even people control over us. This is why paid guessers have to converge their guess as time goes by; they put themselves in a position where they must react to what the market actually has done. It makes no sense to base decisions for your operation off of a paid guesser who reacts, and we have no relationship with.

Instead, it would make better sense to listen to these auctioneers. After all, we do hire them to be our agents and they are engaged with the market daily, and they do build relationships with both the sellers and the buyers. They will be much more likely to give current feedback and help the seller to respond to what the market is demanding.