Another incredible week in the cattle market this week for both the cash and futures. Hard to believe that 500 lb steers calves are going for $850 - $940/head.
In any event, the question I've heard a lot is whether a guy should be backgrounding calves this year? In my mind, that is a pretty easy question answer and it's not very complicated. I'll show a couple of calculations to demonstrate the ultimate point:
Let's assume a set of 5.5 wt. steer calves with an adjusted cost per calf of $550.00/head.
If you figure that unless there is a futures crash prior to the week or to in NOV, these calves will be bringing around $155.00, we would be looking at a gross return of $852.50/head. Which in turn yields an unbelievable net return of $302.50/head.
So, selling those calves right off the cow results in a net return of $302.50/head.
Now, if you elect to hang on to those calves, backgrouding them on a high roughage diet and supposing the market stays pretty stable (i.e., no major movements in basis), you would be looking at something close to the following:
Adjusted calf cost $550.00
Operating costs $20.00
Market position $70.00
Weight out 730#
Total cost (including calf cost) $770.00
Assuming you price protect these calves with a short hedge, option put, or LRP, you will be looking at a cash price in the neighborhood of $140.00
Gross return $1,022.00
Net return $252.00 Less basis and commissions
So, even if backgrounding returned the same as selling calves right off the cow, why assume the risk? Most guys can make a very nice return by selling these calves right off the cow, many should probably leave it at that.
Of course we are a couple weeks out, so a lot of things can change, but on the whole, I don't think it makes a lot of sense for guys to be feeding calves after weaning.
On the other hand, if you need to roll income, at least right now, I don't think feeding calves will hurt you all that much either. You going to assume some risk you don't necessarily have to and you might give up $20-$50/head, but even some savvy marketing on your part should be able to avoid that.
Thank you and have a great day!!