Questions for kpb

[grassfarmer]

I've been rethinking our discussion on the economics of backgrounding calves given the current market prices. Where do you reckon 8 or 9 weight steers will be priced next August? I guess at this stage that will be a gamble based on whether we get a great grain growing season in N. America? Lot's of cheap grain would help prices presumably? Or do you think the stage of the cattle cycle will over rule the grain price issue? I note the price slide there has been this Fall between August and November - your grassers would probably have made money had they been sold in August? - I know it's being wise after the event. As someone with experience of this backgrounding business over many years aren't you tempted to buy cheap calves at the moment?

[kpb]

grassfarmer, hope must spring eternal in the cattleman's heart because I was thinking just last night of exactly what you are talking about.

Consider--if I can buy a 500 pound steer for $1.14 I'll be all in for $570 (as we previously discussed). So I rough background him for $1.00 per day for, say 150 days and add $150 to his value. Maybe a pound a day in growth but no fat added so he weighs 650 pounds and as green as the grass heading out to pasture. We're into him for $720. I think you can likely feed this guy cheaper than I can.

We'll aim to get him to 900 pounds by August. 9 weights are currently .95 to 1.00. I think they might be off .05 by late August so that gives us 900 pounds times say .90 or $810.

Gross profit is $90 per head--from experience I know I can make a small net out of that after everybody and his brother takes a chunk out of me when I sell.

The keys are to buy as light as possible--450's if you can get them healthy--to feed over the winter as cheap as you can and get most of your gain on grass. Oh yes, and to sell them in late August.

Boy, are you right about last summer's grassers that I lost money on--they should have been sold in August and I would have been solid. And the worst part is I know better--the prices are almost always better in last August and early Sept for grassed yearlings. And not only that but the best gains are also past. But this year I got busy with something else and the grass looked good so I just left them on--live and learn.

I think grain prices will affect the price of cattle short term but the cattle cycle, in my experience, provides an idea of the long-term movement of prices. I think the prices on calves next fall will be lower than those seen this fall and so on for three or four more years.

So I think we can make a little by buying light and grassing. But we're still going to have a slug of calves on hand for quite a few months and what happens if the border closes again (not likely I guess) or prices fall for the yearlings by August (for sure a possibility). I'll likely give it a go cuz it looks like it can work but you can see what I mean about little reward for a whole world of hurtin' risk.

kpb


kpb

[cowman]

Just to add to this: You should be able to bring that calf through pretty "tough" for a lot less than $1/day? I mean silage is cheap, hay is cheap? Doesn't need any grain. A 500 lb. calf should get by on 10 to 12 lbs of decent hay plus all the straw he might desire? Now hay is around 3 cents so 36 cents for hay and maybe 10 cents for straw? Add your own costs for feeding/interest/facilities etc....hmmm maybe $1/day isn't too far out? I guess you have to do your own math on this one?
If you have him mean and green come April he will command a premium in the grass market? Those grass guys want them green as grass...because they will grow like hell when they hit that green grass?
Start selling August 15. We like to send them in thirds, one third every week for three weeks? They are usually in that 800-900 range by then? September can still be good but usually starts to drop about mid month.

[cowman]

One more thing: Stopped at the local mart this week and saw some very good yearlings at the market? Selling in the high eighties/low nineties! I wonder"What were these guys thinking?"
These guys are taking a major whack no matter how you look at it? I wonder what they paid for those calves in the spring? Hope they have deep pockets!

[blackjack]

...since i also background like you kpb...i have heard a few other farmers at the auction barn thinking there must be a wack of money to be made backgrounding this year ...its what they bring at other end...like you kbp i have tailend hfrs left thinking i would put a bit more wt on...last year i sold some tailenders in nov and they made the most money ...but i agree guys if you are selling yearlings have them ready for the august market...

[blackjack]

...by the way i was going to add...those 500 lber have moved closer to the 600 dollar avg this week...

[cswilson]

If your calves are too cheap to sell-maybe retain ownership and feed therm out-lots of ways to finance that deal now a days.

[cowman]

We basically made the decision to not "give them away this year"... I still have some problems with that..but whatever!
Calf prices are pretty close to the worst BSE year? Feed is cheap, we have a problem with too much grass, despite buying extra heifers this year...so for us it is a no-brainer. I am kind of leery if this grain price thing is really going to be a "one trick pony"?
If(and this is a big if) the ethanol/bio deisel thing really gets off the ground, are these grain prices going to be the new reality? If so then maybe the future calls for less cattle and more grain/oilseed production?
I don't know how many of you follow the bio energy news but eventually this switch grass thing looks awfully promising? Maybe we'll all be raising grass for another reason than putting it through a cow? That will be a sad day, in my eyes, but might be the future?

[kpb]

I think cowman is likely right about my costs of gain--I'm on a new feeding system this year and I'm not exactly sure how it's going to end up. Generally I should get 1.5 pounds of gain for $1.00 a day so if I aim for 1 pound of gain a day I should likely spend .85 or so.

I would like to point out, however, that my costs are always all in--all costs in. I know there are some guys who don't do it this way and have some other accounting system that works for them. For me, it always made sense to try to run this thing like a business which meant expensing everything. Anyone who has had experience in the business world--whether big or small-knows that absolutely all expenses are accounted for before the profits are figured. There's no sense paying tax on profit that could be reduced through the inclusion of all legitimite expenses.

So for me I include fuel on my truck and fuel on my feed truck, repairs on all equipment and my feed mill, also on the buildings and waterers, a share of heat for my waterers and my shop (heated when I want to), insurance on my buildings, corral cleaning, interest paid on money to buy the steers, a share of the interest on land debt, straw, barley used and hay or silage of course, minerals and maybe protein supplement, drug cost and vet bill, transportation from the market, handling charges at the feeder association. I sometimes hire help and there are always couple of deads or runts (might as well be dead) along the way.

All this is before grass costs which are a whole new ball game. Anyways these are things I calculate into my costs. Maybe forgot a few. I know not all of you do this--that's ok, this is what has to work for me. Oh yeah and I've got to make money in there somewhere too--break-even doesn't cut it here where I've got kids to feed.

I read somewhere the other day that feedlots are saying cost of gain now is .90 per pound for them which is likely pretty close to the real truth.

kpb

[grassfarmer]

One thing that I'm not too comfortable with in these backgrounding scenarios you are talking about is the low winter gains and how this affects cost of gain. Putting a calf on feed now means you will be feeding him for 180 days before he gets onto really good grass - but selling him in mid August likely only gives him 90 days on grass. I like compensatory gain as much as the next guy but I wonder with the climate here, the short growing season and the average pasture management how much value the average producer gets out of going for compensatory growth? If you feed a steer a to grow at 1.7lbs a day over winter versus 1lb it gives you a lot more weight gain to spread your costs ove(waterers,bedding,fuel,machinery).
I know if you want to get top price on yearlings they shouldn't be carrying too much flesh but that is as broad as it is long. Top price on 800lb lean steers may not dollar as well as 1000lb fatter steers.
It's been funny all this talk of high grain prices, the affect of ethanol production and how the cow/calf producer must take the fall for increased cost of gain in the feedlot - why has nobody mentioned the fact that we could move back to a grass based system - what if the feedlots only got the cattle in at 900-1000lbs? Better for the cattle, the beef and the environment in my opinion.

[kpb]

yes, in fact studies have consistently shown that the lowest cost per pound of gain is made when the steer is gaining at the highest rate possible. So, in fact, the most profitable operations are likely those that are able to buy in the fall big, growthy, steers and finish them in the spring. Then buy grassers, say in late March, early April, and feed them for only a short period of time before they go on grass.

Otherwise you run into the scenario that grassfarmer describes of feeding a long time over the winter for a short summer pasture season. Feeding to finish in the spring has worked sometimes but will be tough this year because of grain prices.

Of course the other course might be to forget the winter feeding altogether and just buy in March, feed a little and then grass.

kpb

[cowman]

Well I agree that the lowest cost per pound of gain is probably achieved by pushing big crossbreds hard, I think we need to look at the idea of cattle prices, too? Usually the grasser price, come April, is higher than calf prices during the fall run? Not always...but usually?
And I will admit I don't cost out everything like I should by feeding calves over...which if I did...I probably wouldn't do it!
I don't sell heifer calves, and I don't sell heifer grassers. I get tired of getting the shaft of 15 cents/lb. in the fall or spring! By August of their yearling year it is amazing how much that of 15 cents difference has dissappeared? Now I realize a steer gains a lot better(and cheaper) on barley than a heifer, but when you are basically just trying to maintain them until they go on grass...I think you can actually feed a heifer just as cheap? We're talking hay and straw here...no grain/pellets etc.?
As I said I don't price out things like machinery, facilities, labor for calves. Seems like if you have the tractor out feeding cows and you use facilities you need anyway...what does it really cost you? As far as labor goes...I don't know...you're out there anyway, how much is another half hour of work?
You should definitely be figuring in an interest cost whether borrowed money or your own? However quite often there are some tax advantages too? In fact I would suggest taxes might be one of the driving forces in cattle feeding....like a really big one!
Like I said I know that isn't really how you should look at it.

[cowman]

Just thinking a bit more about this and I guess it is all in how you do it? We never wean calves until after the new year now, other than the heifers we might keep for replacements.
The calves we keep get a bout 10 lbs of hay (probably about 12 by spring) This year they were out by the middle of April on banked grass. Pulled starting in mid August to Sept. and sold at Innisfail.
Now I don't know what they weighed at weaning, I would suspect around 600 avg., I guess they probably averaged around 880(hfrs) in Aug-Sept. The steers were heavier.
Now if I priced my out of pocket money at about 11 lbs hay at 2.7 cents/lb.(some good/some not so good) about 30 cents a day for 105 days...about $32? Straw...bale my own so will say about 1 cent lb. X 10 lb. day or around $11? So feed was $43?
I guess I would need about $20/month for grass so Apr.15 to Aug 15 $80? So total feed was about $123?
A 550 lb hfr calf in October 2005 was $1.23 according to the Alberta Ag site! I don't think I ever saw many sell that high..but whatever! Or $676.50?
Aug 2006 880 hfrs X $1.09 =$959.20
Or a gross profit of$282.70 minus $123 feed = $159.70?
Of course I don't have interest, labor etc. but I suspect $160 might pay for that plus give me a wee profit?

[cswilson]

were going to leave the calves on a bit longer this year-just started feeding on 11/15. We'll bale graze them along with the cows and see how that goes. The cows and calves are looking pretty slick after grazing second growth Canola for a month.We might just let the cows wean them off and go straight to the lot with them in the spring or else out to grass.

[kpb]

cowman, I recognize that you have an off-farm job so you do not have to make a living from the cows. Everyone's situation is unique--but someone who is making a living from the cows with no outside income has to take every expense into account because the money to pay them has to come from the farm. And even the part-timers should do all the numbers--not just gross numbers--so they realize that their labour really is a labour of love.

To your numbers--Innisfail, I assume, didn't sell your calves for free. So you have to take, say $17.50 off for selling commission, then $1 off for brand inspection, $3 to ABP, $1.50 for insurance. I mean these are real dollars you do not get from the gross selling price of your calves.

Then you have to get the calves there and, maybe to summer pasture. I truck my calves to pasture 5.5 hours each way and I can tell you that trucking costs have gone up a lot. But lets say you are smarter than me and have cheap pasture close by and an auction mart next door. I still say your trucking costs will be $20 per head--if you have your own trailer and depreciate the cost down it will be more like $40 or $45 a head but lets say you do it the cheap way and hire it done so we'll say $20 per head for transportation to pasture and to sell. That is very cheap.

The feedlots that I know generally work on $15 a head in drug and vet costs so we should use that. Maybe you never use drugs or the vet but, then, some year you might have a wreck and decide that some prevention is worth it. And how about deads. Well, if you don't run any numbers you might not have any deads but, in order to make any decent gross revenues you have to run decent numbers and then you will have a few deads so I usually figure on $7 per head on death loss.

As for your interest costs--whether you borrow to buy the calves or forego dollars you could have had in October because you didn't sell, there is an interest cost in holding calves for 10 months. I'll say 7% which is likely somewhere between what you would pay to borrow and what you could earn. So 10 months at 7% on $676.50 or $39.46 per head.

Taxes on your grazing land are $5 per head I figure and, although you say you are already feeding cows so what the heck for your time, you have to figure at least $20 per head for fuel and oil on your truck for checking on these guys for 10 months. What about mineral mix--do you feed any? If you do, you can count on $5 a head and that's understated. Repairs on your truck and baler, etc. How about $10 per head per year?

Add 'em up and there's $139.46 in expenses here. And most of these expense are really understated. Your gross after feed was $159.70 which gives you a net of $20.24 per head. So, if you were feeding 100 calves you made just over $2,000. for 10 months. And, if you had 1,000 calves you made $20,000 but then, of course, you might want to hire some help so there's another cost there.

These are all real expenses--maybe you disagree with some of them? But these are real costs that the full timers face every year. And I've left a few out (like operating charges from the feeder associations--mine was almost $2,000 this year).

I'm not whining or crying here--I've done this for a long time and I'm going to keep doing it. But let's face facts here and not throw numbers out that are not grounded in reality.

kpb