To Background or Not to Background?

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
ADG 2.0
DOF 90
COG $0.65
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!!