Adding Value to Crops & Cattle by Backgrounding

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.

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.

As these examples show, just because calves and feed are both less expensive, does not mean that one still can’t lose money. Implementing a risk management strategy to at least minimize the likelihood of crippling losses should be considered. These could include Livestock Risk Protection (LRP) insurance products or futures or options contracts.

Finally, match the diet and ADG target to the cattle type. Feeding smaller-framed calves to gain 2.5 to 3.0 pounds a day usually results in fleshy calves that will have lighter carcasses. Consequently, they are usually discriminated against in the market place when sold as feeders. On the other hand, “slowing down” calves with greater growth potential can result in a greater than optimum cost of gain and reduce their ultimate marbling potential.

 Source: Warren Rusche, South Dakota State University