2015 Decision Guide for Marketing Calves, Backgrounders or Pastured Yearlings
Cow-calf producers have several alternatives for marketing their animals. They can sell them as weaned calves, keep the weaned calves and background them over the winter for sale in spring, or retain them for another stage by pasturing the backgrounders and selling them the next fall. Determining which option is best on a particular farm is a complex issue. Among the variables that need to be considered are cash flow, availability of feed and pasture, and the anticipated profit or loss from each option. This article will deal projecting the financial gain or loss for each option, assuming that the additional feed and pasture needed is available at cost of production.
These projections were calculated by establishing a base budget for each option, and then re-running the budgets within a range of buying and selling prices. In previous articles, Marketing Weaned Calves vs. Backgrounders (http://www.omafra.gov.on.ca/english/livestock/beef/news/vbn1112a1.htm) similar calculations were done using the price ranges relevant at the time. However, since the industry has entered into an era of unprecedented high prices, these calculations need to be updated.
The tables 1, 2 and 3 contain the values used for evaluating each marketing option. The budgets include operating costs but do not include a charge for operator labour, risk or return on investment. The foundation budget for the cow herd (Table 1) was prepared using the OMAFRA Cow-calf budgeting tool.
The scenario assumes cows calving in late May on pasture, with calves weaned in late October. Heifers are retained within the herd to supply replacement females (15%/yr), and the cost of raising them and the associated loss of revenue from the heifer calves is accounted for in this budget. The $ margin from selling the calves at prices ranging from $2.50 to $3.50/lb was calculated and the results presented in graph form in Fig. 1.
Table 1. Cow-calf Budget*
*includes costs for replacement females retained within herd; does not include operator labour or interest on long term loans
The backgrounding budget was prepared using the OMAFRA Background budget tooli. In this scenario, 500lb weaned calves are fed for 150 days to gain 1.5 lbs/day, with a spring sale weight of 725 lbs. The $margins which would result from the backgrounding program were calculated assuming the same weaned calf price range used in the Cow-calf budget and a spring sale price range of $1.80 to $3.00 /lb. The net margins for each price combination are plotted Figure 2.
Table 2. Backgrounding Budget
A similar methodology was used to project net margins from retaining the backgrounded cattle and pasturing them vs. selling them at the backgrounded stage, using a custom spreadsheet. Cattle were assumed to gain 2.0 lbs per day on pasture over a 120 day grazing season, and sold into a feedlot at 965 lbs (see Table 3). The backgrounder price range was the same as that in the preceding example, with an off-pasture price range of $1.40 to $2.00 /lb. The net margins resulting from these calculations were graphed in Figure 3.
Table 3. Yearling Pasture Budget
Figure 1. Margin per cow from selling weaned calves at various prices
Figure 2. Net margin from selling 500 lb weaned calves or 725 lb backgrounders
Example of how to use Fig. 2. The anticipated price for 500 lb calves is $3.10/lb. Draw a vertical line up from this point until it crosses the sloped line which corresponds to the projected price for 725 lb backgrounders ($2.40/lb). Then from that point draw a horizontal line to the left hand side of the graph. Then read the value off of the axis(-$75/hd)
Figure 3. Net margin from selling pastured 965 lb yearlings vs. 725 lb backgrounders
Example of how to use Fig. 3. The anticipated price for 725 lb backgrounders is $1.90/lb. Draw a vertical line up from this point until it crosses the sloped line which corresponds to the projected price for 965 yearlings ($1.60/lb). Then from that point draw a horizontal line to the left hand side of the graph. Then read the net margin value from the axis ($50/hd)
Margins were very positive for the Cow-calf operation selling calves at weaning. This reflects the very high prices for beef cattle currently being paid in the marketplace, while the costs of keeping beef cows have remained relatively stable. Existing beef Cow-calf producers are experiencing an era of paralleled profitability.
The option of retaining calves over the winter presents both risk and opportunity to beef cow operators. Generally, heavier cattle sell for a lower price per pound than lighter cattle of the same quality. This is referred to as a negative price margin. For example, if 500 lb calves are selling for $3.00 /lb and 800 lb stockers are selling for $2.70 /lb, the price margin is $2.70 - $3.00 = -$0.30. This is a negative price margin of 30 cents /lb. The profit potential of feeding cattle to heavier weights lies in the feeding margin - how much it costs to add an additional pound of weight to the animal.
The net margins for backgrounding are illustrated in Fig. 2. This graph can be used to project the profit potential of retaining calves vs. selling at weaning. Over the price ranges used, net margins from backgrounding are positive when the price margin is in the range of -60 to -80 cents per lb. The graph provides a quick method of evaluating whether or not retained ownership is an attractive proposition, and based on these producers can undertake more detailed calculations specific to their farm.
The next step in retained ownership is pasturing the backgrounded cattle. Figure 3 provides a visual representation of the relationships between backgrounder price, off-pasture yearling price and net margin. Over the range of prices used, pasturing would result in a profitable outcome as long as the price margin was -50 cents per lb or less.
In order to compare selling pastured yearlings vs. weaned calves, we need to add together the appropriate margins from Figs. 2 and 3. First, select the anticipated 500 lb calf price and off-pasture yearling price. Then choose any backgrounder price within the range offered in Fig. 2. Next, read the corresponding net margin values from Figs. 2 and 3 and add them together. The result will be the projected net margin for retaining calves through to the pastured yearling stage, compared with selling the weaned calves.
Assume the following prices:
Calf = $3.00 /lb Backgrounder = $2.60 /lb Pastured yearling = $2.20 /lb
Reading from the graphs
Margin from backgrounding relative to calf sales = $150
These tools will assist beef Cow-calf producers in making decisions about retaining ownership of their calves to later stages. Each producer will balance the projected economic benefits against the additional labour and risk, as well as the alternative uses for farm resources.
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