Adding Value To Crops & Cattle By Backgrounding

Oct 24, 2016

By Warren Rusche

SDSU Extension Beef Feedlot Management Associate

Describing the current market prices for both cattle and feedstuffs as poor would be a colossal understatement; dismal would be closer to the truth. Although there is little that an individual producer can do to change market prices, feeding cheaper feeds to add value to calves may be an opportunity to improve the overall bottom line this year.

Potential Margins

Tables 1 & 2 show the potential margins for various cattle prices and costs of gain. These figures clearly demonstrate just how important a role the buy/sell margin and total cost of gain play in the profit or loss of a backgrounding enterprise.

Table 1. Backgrounding Profit or Loss ($ per head) at Different Purchase and Sale Prices.

Purchase Price, $/cwt
Sale Price, $/cwt	$128	$130	$132	$134	$136
$106	-20.04	-31.15	-42.26	-53.37	-64.48
$108	-3.04	-14.15	-25.26	-36.37	-47.48
$110	13.96	2.85	-8.26	-19.37	-30.48
$112	30.96	19.85	8.74	-2.37	-13.48
$114	47.96	36.85	25.74	14.63	3.52

Assumptions: Purchase 550 pound steers, sell 850 pound feeders 120 days later. Total cost of gain $0.70 per pound, 1% death loss.

Table 2. Backgrounding Profit or Loss ($ per head) at Different Costs of Gain and Sale Prices.

Total Cost of Gain, $ per pound
Sale Price, $/cwt	$0.55	$0.60	$0.65	$0.70	$0.75
$106	-12.26	-27.26	-42.26	-57.26	-72.26
$108	4.74	-10.26	-25.26	-40.26	-55.26
$110	21.74	6.74	-8.26	-23.26	-38.26
$112	38.74	23.74	8.74	-6.26	-21.26
$114	55.74	40.74	25.74	10.74	-4.26

Assumptions: Purchase 550 pound steers @ $132/cwt., sell 850 pound feeders 120 days later, 1% death loss.

Bottom Line Considerations

Deciding whether or not to background calves should be part of an over business strategy. Feeders can make money selling their feed through cattle, taking advantage of superior genetics or health status of their calves, or some combination of both, but there needs to be a plan in place in order to capture those efficiencies. There is also the possibility of improved cattle prices between when the calves go on feed and their sale date. However, attempting to time or predict the cattle market can be challenging, even more so in a down-trending market similar to this year.

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