Don’t forget the power of infrastructure

This week I had a lot of driving time and it gave me time to think about some things. I couldn’t help but notice how different things are.

There was a ton of construction which meant delays and detours. One was quite unexpected as a bridge I regularly rely on failed inspection and was closed. This closure means the cattle I ship now have an additional $50 added to a load for detour miles. Add to that the rising cost of fuel and my routine shipping costs have gone up 50% on this run in six months.

Infrastructure is an essential part of the beef industry, but one that has never really been thought about. With our road network, we can ship cattle anywhere and do it relatively quickly. The floods we had in Nebraska are a perfect example. With road closures at the time, feeder cattle were not going to enter some of Nebraska’s major cattle feeding areas. This has caused feeder cattle markets to decline sharply in other states in the short term until the roads reopen. To put it another way, a flood in Nebraska shuts down some highways and Kentucky’s food market plunges.

Look at the distance some of these cattle have to travel to get to a packer. What if for some reason we can’t ship them to a packing facility? The simple answer is that we adjust and redirect them to another one and fix the problem. We can do this thanks to all our interconnected roads.

Now use your imagination and pretend we can’t get them to a packing facility. If we can’t get them to the terminus, what happens to their value? They won’t have any.

These roads and bridges are what make us money. Look at the price difference between four weight heifers in the south compared to plains markets. With this kind of geographic distribution, anyone who knows how to do the math would be happy to pay the driver $5,000 to deliver them.

When prices drop in an area due to drought, it is sometimes advantageous to ship cattle to an area that has received rain to get a better price when selling or to graze/feed on demand . A financial catastrophe can be avoided thanks to the road network

Even though they are bumpy, we should really be thankful for the roads we have. And we should be grateful to the people who leave their families behind for days and sometimes weeks to haul cattle for us.

A little market surprise

The bridge closure wasn’t the only surprise this week. I was at an auction yesterday and some cows were weighed 98 cents. Then, looking at the market reports this morning, I noticed that in Montana they were selling pairs of heifers for $3,450! Just a few months ago they were shipping cows from that state to Nebraska to try and get a better price. I have also noticed that five-weight heifers fetch as much as steers in the western states.

The price of the pairs caught me off guard. I compared the actual value to the intrinsic value and the only ones that sold above their IV were the pairs of heifers. Even though the mature pairs also saw a strong price increase, the pair’s split weight value still undervalued them

While it’s fun to talk about the highest prices in the market, our main concern should be to make a profit. Even though I said the overall state of the female market is undervalued (again, this is in Montana), cattle are still trading over/undervalued relative to each other. All ages and all classes do not increase in the same way.

Even though the heifer pair is the most overvalued and the only one to sell above their IV, we can improve our position by selling it and buying back an older pair. This happens in two ways. First, we’ll have a bunch of money to help offset the older woman’s depreciation. Also, older pairs have a much higher IV, so we also add value to the balance sheet that way. What a story! Increase herd value and increase our cash flow. And to be clear, when I’m doing this comparison, I’m not using the $3,400 heifer pairs, I used the $2,200 pairs.

Trading pairs of heifers isn’t the only possible trade that’s awesome. Calf size and cow condition also created money-laden exchanges between mature cows.

View from the cattle market

Feeder cattle racing has been thin this week. Many auctions didn’t even bother to report their sales. Add to that alternating summer hours. What I’ve seen suggests VOG is improving across the spectrum. With light runs, buyers were going to have an almost impossible time filling a load with cattle of a similar type, so they bid aggressively on load lots.

People who really need to hear that last part don’t read this blog. I spoke to an auctioneer earlier in the week and he informed me that he had three cattle for sale. They were removed from the cow yesterday, this is the first shot. The heat index was in the triple digits, strike two. And they were still bulls. This seller has done nothing to help himself. I’m writing this column to try to help people make money. The thing is, I’m also more than happy to collect the money that others leave on the table at an auction.

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

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