Feedlot cattle

Background calves could spell extra profit for cattle producers this year.

This harvest season has been a challenge for many grain farmers, but that has resulted in a favorable feed situation for livestock producers. The region has experienced disease and weather damage to a large part of the wheat crop, and portions of the row crops have been damaged due to frost and excessive soil moisture, making harvest difficult. But on a positive note, plentiful rain in most regions resulted in replenished hay stocks and additional available grass.

In addition, the thought of a short corn crop due to harvesting problems has also depressed calf prices and the Tyson packing plant fire in Kansas has also weakened the calf market.

When all of these factors are considered, this adds up to a positive picture for backgrounding calves this year, according to Bryon Parman, Extension agricultural financial specialist at North Dakota State University.

“This provides an opportunity for us to really think about retaining those weaned calves and putting some of the weight on them ourselves,” Parman said during a recent Extension webinar on backgrounding calves this year. “Cattle feeders are willing to pay for someone to put weight on those animals at this time.”

To go through the financial analysis of backgrounding calves, Parman developed six different scenarios, three for heifers and three for steers. He used three different rates of gain for steers: 1.8, 2.8 and 3.6 pounds of average daily gain; and two different rates for heifers: 1.8 and 2.8 pounds average daily gain; but two different scenarios in the 1.8 pounds of average daily gain category. One takes the weight from 450 pounds up to 756 pounds, while the other has a starting weight of 550 pounds and takes the calf up to 848 pounds, which Parman describes as “replacement quality high-end.”

The assumption is the calves are held in the feedlot until the weight is reached that they anticipate selling them at.

Parman also listed the costs associated with backgrounding calves that included things such as feed costs, yardage, interest costs, vet and medical costs, shrink and death loss. The beginning value of the calf, as well as the anticipated selling costs once the target weight is achieved, was determined from the USDA weekly cattle auction summary sheet, using the prices from the Dec. 13 report.

A spreadsheet on each scenario was developed and presented on the website. Those detailed spreadsheets can be viewed at https://www.ag.ndsu.edu/livestockextension/backgrounding.

The following are Parman’s scenarios:

Scenario 1

Heifers are at a starting weight of 450 pounds and marketed at 756 pounds over a 170-day period. Average daily gain of 1.8 pounds per day with feed costs of $0.74 per day with a return to labor, management and risk at $94.50 after considering a starting value of $140.00 per cwt. and a selling price of $128.50.

Scenario 2

This scenario also shows heifers gaining at a rate of 1.8 pounds per day, but with a starting weight of 550 pounds and finishing at 847 pounds over a 165-day period. Starting value of the calf is $135.00 and market value of $129.00 per cwt. Feed cost is $0.84 per day and the return to labor and management is $87.94.

Scenario 3

This scenario uses a 2.8 pounds of average daily gain and takes the heifers from a weaning weight of 525 pounds up to a market weight of 805 pounds over a 100-day period. Beginning value is $140.00 and a projected selling price of $128.00 per cwt. The daily feed cost is now $0.94 and the return to the operator is now $114.26.

Scenario 4

Looking at backgrounding steers, this scenario shows taking steers from 500 pounds up to 801 pounds with 167 days on feed, and a 1.8 pounds of daily gain rate, with a beginning value of $165.00 per head and a projected selling price of $141.00. Feed costs are $0.79 per day and the return to labor and management is $48.39.

Scenario 5

This scenario has a 2.8 pounds daily gain for steers with a starting weight and cost of 525 pounds and $165.00 per cwt. They are sold at 805 pounds at a projected price of $140.00. They are in the feedlot for 100 days, the feed cost is $0.94 and their return is $76.81.

Scenario 6

This final scenario shows steers with a 3.6 pounds of average daily gain. The steers start out at 575 pounds with a value of $165.00 per cwt., and are sold at 1270 pounds with projected selling price of $120.00. They are on feed for 193 days with a daily feed cost of $1.33 and have a return of $162.43.

However, Parman said there are some risk considerations that must be taken into account with setting up these scenarios. These include the final sale price, which can go up or down while the animals are on feed; feed costs, which make up the largest share of daily costs and an increase in price will lower daily profits; and daily gain assumptions, since weather, illness and other such things can lower average daily gains, which will require more feed or time in the feedlot to achieve target market weight.

Working off these six basic scenarios, he developed spreadsheets showing changes in the various factors listed above. One showed taking the projected selling price of steers in scenario 5 from $140.00 down to $125.00, which resulted in a loss of $39.11 to labor and management instead of the original $76.81 positive return, or a difference of over $115.00 per head.

Looking at a lower rate of gain in the same scenario, we will assume the rate of gain at 2.0 pounds per day rather than 2.8 pounds. This takes the return amount down to $15.31 per animal versus the original $76.81.

Finally, using the same scenario, we assume a 25 percent increase in the cost of feed during the feeding period. This will result in a return to management and labor of $53.06 per head instead of the original $76.81.

The biggest impact on the return to labor and management will come from what you are able to sell the animal for, Parman noted, and taking on some of the risk management tools such as the USDA’s RMA Livestock Risk Protection or working with your local banker to lock in some of these profit figures with futures or other means.

In summary, Parman had the following comments:

  • Retaining animals, under the current cattle prices, price slides and feed costs makes financial sense.
  • Currently, cattle feeders are paying a premium for rancher/farmers to put weight on cattle.
  • Money can be made by narrowing of the price slide between heifers and steers when cattle approach 750 pounds.
  • The risk of market price reductions is generally the largest risk factor when retaining and backgrounding/feeding cattle.
  • It is financially more important to hit daily rate of gain targets than to shave costs on feed by altering optimal rations.

To watch the complete webinar by Parman, or three other subjects related to backgrounding calves go to:

https://www.ag.ndsu.edu/livestockextension/backgrounding.