To sell or background calves

This article was first published in Volume 4 Issue 3 of ABP Magazine (September 2024). Watch for more digital content from the magazine on ABP Daily.

With the prospect of high prices in the future, it can be tempting to background. However, factors including current calf prices, cost of gain and projected feeder prices can impact profitability. Additionally, operation-specific factors like feed costs, animal performance, and interest rates are highly variable. Therefore each operation needs to crunch their own numbers.

While back-of-the-envelop calculations can give a quick sense of financial viability, sometimes it’s best to dive deeper into the numbers. The Beef Cattle Research Council’s (BCRC) Background Calculator allows for a direct comparison between selling at weaning or backgrounding for 30, 90, 120, or 180 days. The tool’s user-friendly design allows for a quick comparison between all options.

For example, using a current market scenario, all four backgrounding periods show a negative return. Backgrounding periods of 30 and 90 days show estimated returns of -$203/head and -$393/head, respectively. Longer backgrounding periods increase the magnitude of negative returns. By increasing average daily gain (ADG) to 3 lb/day and feed costs to $3.03/head/day the losses are reduced to $117/head on 30-day backgrounded cattle and $213/head on a 90-day backgrounded cattle.

Assumptions used in this analysis include: a 3 per cent shrink on weight, average daily gain of 2 lb/day, feed costs of $2.02/head/day ($1.01/lb of gain), vet and medicine at $26.28/head, yardage (including labour) at $0.60/head/day, death loss at 3 per cent, marketing costs at $20/head and interest at 7.7 per cent. The cost of barley is estimated at $270/tonne for the entire feeding period. Anyone backgrounding should calculate the interest cost, as current rates make it substantial.

The current weakness in the futures market is playing a role in these results. It should be remembered that backgrounding last winter, backgrounding margins looked disappointing until the February 2024 rally in feeder prices provided support.

In the end, deciding whether to sell or background calves come down to analyzing the numbers for your specific operation. While the current market scenario above showcases the capabilities of the BCRC’s Background Calculator, every farm has its own unique costs and performance factors, so it’s important to do your own calcualtions.

Taking the time to investigate your options can lead to smarter and more profitable decisions.

The Background Calculator, which has recently been updated, is a fantastic tool to help producers crunch their own numbers. Give it a try at beefresearch.ca/tools/precondition-calculator to see how different backgrounding periods might impact your bottom line.