Feeder cattle prices remain attractive and create an opportunity to background calves. Gross margin calculations, resulting from determining the value of a calf before and after backgrounding, help guide this decision. A web-based service, Beef Basis, provides producers and individuals working with them with a simple tool to arrive at a forecast feeder calf price both at the start and end of a proposed backgrounding period.
Using information from Beef Basis, one can estimate the price of a group of feeder cattle. Conducting this exercise on cattle intended for backgrounding and on the same group at a predicted point in weight and time after backgrounding, one can calculate gross margin.
A simple exercise conducted with this tool to predict the value of 100 steer calves — weighing 650 pounds when entered into a backgrounding period on Nov. 11 and backgrounded until sold on March 17, 2025, weighing 950 pounds (126 days or 2.38-pound gain daily) — led to a gross margin of $713. Feeders weighing 650 pounds were estimated to bring $249.20/cwt in November, and those weighing 950 pounds were estimated to bring $245.55/cwt in March.
This gross margin represents the differential in value between steers at those weights, dates and locations. For an operator wishing to background this fictitious group of calves, it represents the maximum potential change in value between a 650-pound and a 950-pound steer. Obviously, purchase, interest, transportation, veterinary and medicine, feed and feeding costs must be subtracted from this total to determine net profit.
Although many of these expenses are highly variable and dependent on location, the largest expenses, of course, are feed cost and interest rates. Beyond that, expenses that greatly reduce this margin are those associated with death and sickness.
At an 8% interest rate, the full value of the steer ($1,600) generates $76 in interest; $0.60 per day of backgrounding. Feed costs, assuming 23 pounds of feed per head daily of a diet containing 30% forage and 70% concentrate ($175/ton) are $2 per head daily. Yardage, which includes labor, facilities, utilities, fuel and oil, repairs, equipment use or rental and other miscellaneous costs, was calculated at $.65 per head daily. Lastly, an allowance of at least $12 to $24 per head for veterinary and preventive medicine costs should be considered.
Without transportation costs, the total for this exercise is $428 per head. If we assume transportation costs to be $50 round trip to and from the sale barn, a grand total of $478 is expected to be invested.
If these price estimates hold, a producer backgrounding calves with a similar scenario is expected to net more than $200 per head. This is not a bad prospect for an investment of $2,100 or nearly a 10% return on investment for a period of 126 days.
Because cattle prices are expected to remain high for the balance of 2024 and well into 2025, the opportunity to purchase or retain calves in the spring for sale after a grazing period in 2025 is attractive also. Yet, producers considering this opportunity are encouraged to visit with their financial adviser, nutrition consultant and their veterinarian to ensure that the risks implied by this venture are managed.
