Background calves for more profit

The motivation for backgrounding beef calves is usually to add some additional value to the calf beyond that of the weaning value. In early September, 550-pound steer calves were selling for \$125 per hundredweight in this geographic area. However, with the recent increases in the price of corn, it may now be \$10 per cwt. less. During September alone, the feeder-calf price moved more than \$6 per cwt., while the live-cattle contracts moved more than \$4 per cwt., and corn increased 70 cents per bushel.

Key Points

Backgrounding generated an average profit of \$24 per head in 2009.

The least profitable feeders lost an average of \$53.70 per head.

The volatile prices in recent months present a challenge when deciding what to do and how to budget for additional gains in net income. Timing the purchase and sales of both the calves and the feed is a big factor in being able to add value and, more importantly, to gain additional net income.

Knowing your cost to put on a pound of gain is yet another important piece of the budgeting process. Can you keep your cost of gain low enough to offset the drop in value per hundredweight from weaning to feeder price and then to fat price? Price differentials appear “normal,” if there is such a thing, with approximately a \$10 per cwt.difference each between stocker (weaned) calves, feeder calves and fat (live) cattle.

Consider these examples

Let’s look at an example using steer calves weighing 550 pounds and taking them up to 800 pounds. The value of the 550-pound steer is \$115 per cwt., or \$633 per head. This is the amount you’d give up now for an increase in total value in the future. The estimated sale price is \$105 per cwt., or \$840 per head. In the feeding process you are adding 250 pounds of weight and \$207 of gross value to the calf. With this information you can calculate your breakeven cost per pound or per hundredweight of gain.

The increased value of \$207 divided by the increased weight of 250 pounds is \$82.80 per cwt. This becomes your breakeven cost for the additional gain you need to beat to provide an increase in net income. In this example of taking the weaned calf to a heavy feeder, you must keep total cost of gain under \$82.80 per cwt.

Data from producers enrolled in the North Dakota Farm Ranch Business Management program for the last five years indicates that the feed cost has, at times, been under 35 cents per pound of gain, but this year it is likely to be higher due to the current price of corn or other concentrates. Keeping the cost of gain below \$82.80 per cwt. would allow for covering the direct and overhead costs and some net income. If the total cost was \$70 per cwt., this would leave a net of \$12.80 per cwt. (\$82.80 minus \$70), and thus the 250-pound increase in weight would equate to \$32 per head of net income.

The 2009 North Dakota Farm and Ranch Business Management records, which included 79 backgrounding operations and 9,559 calves, showed an average cost of gain of \$71.40 per cwt. and an average net return of \$15.70 per cwt., or \$24.09 per head.

When viewing these 79 groups of backgrounded calves, it should be noted that while the average net return was listed at \$24.09 per head, the top 20% produced a net return of \$117.53 per head while the lowest 20% produced a negative net return of \$53.70 per head.

The average daily gain is a critical factor in keeping the cost per cwt. low enough to achieve a positive net income.

Heifer calves will generally not gain as well as steer calves, but may present some opportunities as weaned heifer calves are selling at approximately \$10 per cwt. under the price of steer calves this fall. Price improvements into the spring of next year have been the norm, and many producers may attempt to take advantage of this.

Tuhy is a North Dakota Farm Business Management instructor at the Dickinson Research Extension Center. Contact him at 701-483-2348, ext. 122. E-mail j.tuhy@bsc.nodak.edu.