 Hi, I'm John DuVetter with the North Dakota State University Extension Service. I'm an area livestock specialist and I'm pleased to welcome you to our program on backgrounding calves in 2015. Each fall our ranchers have to make some production and marketing plans in typically about half of them wean their calves and feed them for a period of time to heavier weights which we call backgrounding. The fundamentals and factors which go into the profitability of this enterprise vary quite a bit from year to year. We've had recent years of extremely high grain prices. We've had years of rising rapidly rising cattle prices during this backgrounding phase but today 2015 we're faced with fairly cheap abundant feed and a cattle market which has been on the down slide. So I think to get things started here and get a little insight into the economics of what the potential is for backgrounding this year I'm going to ask a few questions of our livestock marketing economist Tim Petrie who's stationed at the NDSU campus in Fargo. So Tim I guess you know this market's really been moving a lot mostly down. What are your price expectations for the 550 pound kind of vaccinated calf coming off the cow going into the market today? Yeah sure I agree that we really have had a volatile market with last year record high increases and then the last couple of months we've had a big downtrend main causes for the decline being a contra seasonal downward fed cattle market caused by many factors including a backlog of heavy cattle and record weights also record high pork production. You're going to hear record a lot today record high pork and poultry production in a stagnant export market. So yeah price expectations is a very good question somewhat difficult to answer probably due to the wide range in prices for the same weight and greater calves at the same market again due to many factors such as are they weaned or unweaned are preconditioned to have health programs and so on. So I expect another twenty to thirty dollar range like kind of happened last year and in prices at the same calves at the same market. And so as we can see in the chart we have a more normal seasonal pattern this year with declining prices in the second half compared to last year when they went up every year so keep that in mind. We are expecting calf prices to be about twenty five to thirty cent percent lower than last year so for example a 550 steer last year that brought 280 is closer to $200 even to 210 this year. Of course every market has good news and bad news for those selling calves the bad news is we're below last year and probably below earlier expectations of a few months ago but the good news is we still have the second highest prices ever but for those buying calves it's still going to mean that they're going to have to come up with a lot of money. I think we'll sell a lot of steer calves in that 195 to 210 area and again like always heifers are really discounted this time of the year twenty dollars are for the lower end even more so that puts them in about 175 to 190. Sometimes we see some preferences for the real light calves especially when we have a good winter wheat crop down south and they need some grazing animals. I would think with the price of wheat this year not looking too optimistic there'd be some interest in grazing. What do we see on the slide on the weight classes between lights and heavy? Okay yeah well we really haven't had a good test the light calves yet because we have such good conditions out in North Dakota and there hasn't been much weaning or light calves brought to market but for sure the price slide is a lot less than it has been the last couple of years there are several reasons for that. Most of the calves coming to market now are not weaned or preconditioned and are balling calves and that's typical of an early market again not many being sold. You mentioned winter wheat and that is the big one. Winter wheat planting is way behind schedule particularly in Texas and Oklahoma and it's dry down there and so that market has not materialized yet with the weather pattern where we they are expecting rain and we hope that we get it but so far that is not materialized and so the market is really encouraging producers to wean and precondition calves. Looking at the charts for instance for last week average 550 steers were about 205 but the 750 dates were only $10 behind at 195 so last year the market was $40 different so we need that winter wheat crop to really materialize to get any spark in those lighter calves. Well you've given us pretty good indication where she's trading in this early market and also said they were kind of seasonally normal trying to slide down as the runs of calves come to town. Can we expect some when we can hit a seasonal low and when can we expect some recovery or is this all guessing games? Yeah well that's a good question and yeah calves do usually reach a seasonal low in November when all the cattle come off of pastures and the big runs hit the market as the chart shows the market has already declined since August about 20 to 25 percent so the big seasonal decline is behind us in fact it's one of the largest in history declines here in the last couple months so some weakness still may occur especially in those unweaned calves without a health program or you know that are the less optimistic calves there but and you know there's a lot of volatility uncertainty in the market which causes buyers to be a little bit more reluctant on those calves that don't have a health program and so on but if we can get some rain in the winter wheat belt and get some seasonal strength back in the feeder in the fed cattle market so that is which is possible that would support prices however we're not going to go back to last year's prices for sure and cyclically we are on the downtrend so we need to keep that in mind. Well we know backgrounding works really well when you're in a rising market because then the price cattle get more valuable every day you got them and you feed them and take care of them. Big question now is what are these six seven eight hundred pound feeders going to be worth come January February March because if we had a good idea on that then we kind of know how this is going to pan out. Yeah that's always the sixty four dollar question and while calf prices tend to increase after the first of the year the heavier weights often do decline after the first of the year would be a normal seasonal pattern however the range in prices for those heavier weight cattle do narrow because they have been weaned they have had a health program and so on January to March feeder cattle futures are trading below cash prices now in fact just a couple weeks ago they were a lot lower they've rebounded 10 to 12 dollars so we've got January futures in it about 180 now and the March futures in a little dollar so lower than that still below the CME cash settlement price which is all six fifty to eight fifty calves so the futures is still discounted to the current cash market so I think there is a first step we do have to look at the futures market as a target hopefully we can get some strength as I mentioned before back in that fed cattle market and we can do better than that but also keep in mind that there's always risk in a volatile market so producers need to keep that in mind as well. Well we got a little idea where the cattle are trading where they might be going using the futures of a bit of a guide feed is fairly cheap interest is kind of low fuel cost is down quite a bit what would be your cost-to-gain target for calves doing that two to two and a half a day in a background program. Yeah okay feed prices do vary quite a bit across the state and we do have a wide variety of feed stuffs and speakers later are going to discuss some of those it even depends on if you're selling corn to the elevator versus buying corn there might be a 30 cent difference there so that obviously affects our bottom line but you know I think now we should look at the low 50s for a cost-to-gain some certainly with lower feed costs and lot costs and so on will do it in the 40s a few might even be up in the 60s but let's shoot for those lower $50 range is a good starting point. Well that is kind of with those kind of cost-to-gain projections and kind of our slide on the weight classes narrowing up this year when you put it all together what's the budget show a little room here to make some money. Yeah absolutely on my website I have an Excel spray a sheet that producers can use plug-in their own information there's also a calf web break even budget there so in the example you see on the screen now I just brought in a 550 weight calf at $205 and then a 750 calf out at $175 in January March whatever you want to use I have a two and three-quarter pound to gain corn at $3 again corn is kind of all over the board my example shows about a $50 per head return and interestingly enough I went back to last year at this time when calf prices were a lot higher 280 calves were projecting 230 out came out to $50 last year at this time so the market does try to I think encourage some backgrounding and some return there and very similar to last year but you know it looks like we can background calves as we all know however there are many factors that affect calf prices and there is risk and we've seen that in the last couple years but that's how it looks right now. Well thank you Tim for sharing those insights into the economics maybe backgrounding this year is there anything else you want to pass along as we close. Well you know again going back to that wide range in calf prices and if you look at the bottom level and add value to some calves that helps heifers are always discounted this time of the year and sometimes are really a nice market class to background because every 50 pounds we gain prices on steer calves so you know just look for some of the best opportunities there for making some money. Thanks.