 Hello, everyone. My name is Brian Parman. I'm the NDSU Agri-Cultural Finance Specialist working for the Department of Ag Business and Applied Economics and NDSU Extension and today's presentation. I want to talk a bit about backgrounding profits and returns for fall of 2021 headed into 2022 and this year we're dealing with some different circumstances than we have in the past with respect to livestock, particularly cattle prices, live cattle and feeder calves, as well as feed costs, things like hay, dried distiller's grains, corn, those kind of things, crop commodity prices a bit higher this year, but we've had some strong livestock prices this fall and as we go through this we're going to see how this is going to work out for feeders potentially across North Dakota and the surrounding states. So for the scenarios that I'm running here and that we're kind of going by, these are the price assumptions that we are working from this year and this is quite a bit different than last year. Corn, for instance, we're assuming about $5.75 a bushel, corn silage at $55 a ton, dried distiller's grains well above $200 a ton at $2.20. Most of the things like limestone bag salt and pre-mix, I didn't change too much, but hay prices are quite a bit higher, approaching $200 a ton for alfalfa hay and 125 for grass hay and then the yardage fee. We settled in on about 40 cents a day for yardage, part of that due to the higher energy costs that folks are facing this year with higher natural gas prices. Fuel prices, things like that as well as potential electricity costs and then trucking. Last year's assumption was about 75 cents per hundred weight, increased it quite a bit, almost 66% to a dollar 25 per hundred weight. On the other hand interest slightly down to about 5% assumption and then shrink and death loss staying roughly about the same. So this is kind of the price assumptions here. Obviously as I go through this you can adjust those in your mind a little bit if you need to. If you think some of those are a little bit too high perhaps too low that's just sort of a good benchmark that we feel like that we're running from here and so if you think again that some of these are off feel free kind of to maybe make a mental note and adjust them accordingly. So these are the six different scenarios that we are running through and that I'll be going through during this presentation and we have basically three steer and three heifer backgrounding scenarios. One of which is the 1.8 to 2 pounds average daily gain for for steers and these animals start at 500 pounds and are sold at 800 pounds and this is the feed cost under those assumptions that I was running through per day. So feed cost per per pound. Then the 2.8 pound scenario slightly heavier purchased heavier and sold a little bit heavier. That's 2.8 pound average daily gain. That's going to be about 60 cents per day or 60 cents per pound under that ration scenario. Then a much faster daily gain at 3.6 pounds a day and these are starting at 575 pounds all the way out to about finished and that comes out at about 64 cents a day. Heifers we start with a scenario of lighter weight heifers 450 up to 750 at 72 cents a day. Then we have a 550 weight up to 850 weighted across the 77 cents per day and then a 2.8 pound average daily gain for heifers from 525 weight to 805 pounds at a feed cost of approximately 59 cents per day. So again I'm going to so to start with I'm going to go through the steer feeding scenarios first and then I'll go through the three heifer scenarios after that and then we'll compare all six. So this is the prices that we that I'm using for this presentation here and this came from the North Dakota weekly auction summary ending the week in November 13th which this is this recording is being made on the 15th so this was Friday last week and showing the steer prices for the for the various ranges of weight and then I put a live steer price there assumption at the bottom so for for fat cattle at about 131 dollars and 40 cents at 1350 pounds was the last report I saw for some of the the buyers down in in uh Dakota City kind of area. So these are the assumptions working from here uh for as far as the value of the animal coming into your backgrounding operation and then the value that you would be selling at at whatever the weight happens to be 750, 850 pounds etc and note I use the average price here I don't use a high and a low I'm just simply using the the average price because again this is an estimation for these scenarios. So this is our first scenario we're running here and this is that 500 weight to 800 weight um steer at 1.8 pounds per day this is the ration being fed and you'll note here on this this right column where it says dollar per head per day that's not dollars per pound so you'll note that it's a dollar 30 per day and we I gave the previous chart that showed the price per pound this is a you know the cost per day versus dollars per pound assuming that 1.8 pound per day scenario. So we put it through our our backgrounding budget estimator and I use the North Dakota State University backgrounding budget and make some modifications to it for instance if you open up the budget you see online down below the return to labor and management risk you'll see all these prices for feed stuffs I simply didn't use that because I already did the ration assumption up there so for the sake of this presentation I just put it in as the cost and you'll see the feed cost of a dollar 30 per day rather than rather than going and filling out each individual item within the ration since I already showed what the ration was you can you can see that and what we have here in this scenario to get to approximately 800 pounds that animal is going to be on feed for 167 days and with the lot cost and the shrink in the trucking our total return over labor and management is about minus eight dollars and the biggest reason that this one actually takes a loss and and this is kind of the scenario for all the steer scenarios is that the the current market price of feeder calves steers particularly that 550 weight area those animals are bringing a relatively strong price so in order for someone to make any money on on steers that 500 550 weight they're going to have to put on more weight faster than than 1.8 pounds per day is just kind of what this is telling you so they're on weight long enough here and and and it just takes too long it's just too slow and so essentially there just isn't a big return if we're not putting on the weight on our steers fast enough so at 1.8 pounds that that steer it just isn't generating the returns at 167 days on feed but you'll see going forward this back uh backgrounding and putting on the weight at least on steers and and heifers as well is a is a profitable situation going forward so our next scenario we're running 575 weight animals to 855 pound animals and this is again is a higher rate of gain 2.8 pounds per day instead of that 1.8 that I that I had in the last scenario total feed cost per day is a bit higher because of the fact that that we're putting on more weight so it's $1.68 per per head per day on average to to get from 575 pounds to 855 pounds at 2.8 pounds per day and you see here here's the ration you know a lot of silage corn being being in this ration as well as legume hay and some corn and DDGs the budget here and the profitability on a 855 weight steer or putting on 2.8 pounds from 575 to 855 is a fairly strong proposition we hit we have decent decent profitability numbers at $65 per head and that's at that average daily gain of 2.8 pounds per day basically signifying that being on feed less time while still putting on the weight actually pays as far as steers go and even though the feed cost is is significantly higher at $1.68 per day because we're putting on more weight they're only on feed for 100 days instead of approximately 167 and under that scenario we wind up with a situation where we have essentially a much stronger return and $65 per head so it just shows here that that again as has been in previous presentations or renditions of this that I've done in different scenarios and feed costs in years past that it just shows that putting on weight faster tends to be a much more profitable proposition for producers than leaving them out there for a longer period of time as yardage costs wind up eating up a lot of the gains. So here's our final steer scenario and this is basically taking them from a calf at 575 pounds all the way out to pretty much a fat calf and just about ready to be slaughtered and and this is a much faster rate again at 3.6 pounds per day and of course for that reason you're looking at $2.32 and 31 cents per per per head per day to to put on that kind of weight with a much of the ration coming from silage corn and corn grain as well as some DDGs and grass hay but this is the the ration for for this scenario now this is the the spreadsheet that that comes out there and you'll note that despite the higher cost per day and the longer time on feed because this animal is going to be on feed for 95 days longer than the previous example even though we're putting on more more weight per day we're just flat out putting on more weight so it's going to stay in the yard a lot longer and this this basically pays out to $85.43 per head so again a decent amount of profit to be made backgrounding this steer to to basically all the way to finish you'd be looking at making $85.43 a head approximately but it's also worth mentioning the longer they're on feed even though we're putting on the weight then there you run the risk of things like feed cost changing or livestock markets changing because under these scenarios remember i'm assuming a fixed fat cattle price and 200 days from now fat cattle prices could change they could be better or they obviously could be worse so somebody may be looking at this as a as a possibility might want to go ahead and and use some of the the revenue protection products by a futures contract or something like that in order to take advantage of the prices as they are and ensure that there aren't going to be any losses so our next set of scenarios the three that we're going to talk about here are heifer feeding scenarios and these follow along similar lines to the three steer scenarios we had with some slight modifications so here are the prices that are used for the heifer feeding scenarios and they're pulled from the same auction report looking at feeder heifers all the way from you know 300 pounds up to a thousand pounds i don't have a a fat heifer price on here because i do not do a a finishing heifer uh scenario uh in in any of the three that you'll see going forward so the first scenario being done is 450 pounds a lightweight heifers up to 750 pounds at a relatively low average daily gain you know the the lower end of the steers at that 1.8 pounds per day and a good share of this ration coming from silage and and a good share coming from grass hay and that comes out to $1.29 $30 per day to put on this 1.8 pounds on our heifers from 450 pounds to 756 so to achieve uh or arrive from 450 to 756 pounds at 1.8 pound per day that animal's going to have to be on feed for about 170 days so quite a long time on feed for these these heifers here almost as long as finishing out a steer all the way from 550 to to 1270 something pounds uh at 3.6 pounds but you'll notice down here a positive return of 36 dollars and 18 cents despite the fact that they're in the lot for quite a while at 170 days and this feed costs and of course yardage fees wind up adding up day after day after day but what we're seeing is that as far as heifers go even in the in the least uh or the slowest uh rate of gain scenario that that's being done from the lighter weight lightest weight up to 750 pounds still a profitable endeavor and and when we're covering all of our costs here and and and netting 36 dollars per head so that's a that's a pretty strong return out the gate and I've done this uh presentation or similar for for the last several years and typically this this particular scenario is not really a moneymaker per se it hasn't been in the past but it is this year and one of the big reasons is that price gap between steers and heifers when you go from 550 weight up to 700 or 800 pounds is it almost goes away I mean 800 850 weight 758 heifers are selling for almost as much in a lot of cases as the similar weighted steers so that price gap closing significantly you're winding up making making up a lot of ground financially by by putting that weight on so not only are you making money putting on some of the weight that cattle buyers are looking for right now but you're also making money by closing that price gap between steers and heifers so even even the this scenario here which which typically I've done in the past has not yielded a positive return it is this year at 36 dollars and 18 cents per per head on average so our next scenario it's the similar it's the same daily rate again at 1.8 pounds per day but we're starting with 550 weight heifers up to 850 weight instead of 450 to 750 like the last scenario again though using relying heavily on silage for our feed and and grass hay as well with a little bit of ddgs in this case uh for a daily cost of a dollar 39 let's call it a dollar 40 per day to put on that kind of weight uh under this scenario so basically we are putting on the same amount of weight 300 pounds at the same average daily gain so that these animals are going to be on feed pretty much the same amount of time as the previous scenario 170 days but you'll notice that the the feed cost does change but look at our uh return to labor and management going from what it was I'm 36 37 maybe up to 40 dollars per head all the way up to nearly a hundred dollars per head and the reason why is the amount that's being paid by cattle buyers for these 850 weight animals that price is really strong on heifers 850 weight heifers where the price gap between heifers and steers is pretty much gone entirely and so with strong prices for 850 weight calves uh it's really it's really reflected here in this return of a hundred dollars per head so we are making some money on on on putting on on the feed on the the feed end of things but really a lot of this money a lot of these returns are coming from that price uh that strong price for 800 850 weight heifers as well as steers for that matter but that's that's really where the strength in this is coming from and showing that uh this year uh compared to all others is an outstanding year really to be backgrounding your heifers uh and taking advantage of what the market is telling you is and what the market is saying is that uh feedlots finishers uh they're really wanting these 800 850 weight calves that's that's what they're they're all looking for and uh they're willing to pay for it and and it just shows right here so the final scenario uh doing with dealing with heifers and the final scenario of the of the presentation is heifers from 525 pounds to 805 uh at a more rapid rate of gain at 2.8 pounds per day so a pound more than than the previous two scenarios and this again will be a little bit more expensive per day to do because we're putting on more weight relying heavily still on silage some corn and grass hay and then and then a bit of ddgs as well for this scenario and here's how this particular scenario shakes out uh you can see that uh the animal is on feed for fewer days instead of 170 it's down to 100 because we're putting on putting on the weight faster uh the beginning value uh the sales prices are are slightly different uh and and the feed cost is higher uh but you'll note that the return to labor and management is actually uh the highest of all three scenarios in this case uh this showing that putting on the weight uh faster does in fact pay okay and and you'll notice that the the risk of keeping of of this particular scenario is probably lower because they're on feed for fewer days so you're making just as much money as you did in the last scenario but not having it but keeping them in the yard 70 fewer days so you if you think of it from a risk standpoint it's less riskier the the fewer days you have them less susceptible to changes in feed prices because again as i make these scenarios uh we're assuming consistent corn prices consistent cattle prices consistent while feed across the board uh consistent shipping costs etc etc etc and if any of those you know take a turn for the worse in other words feed costs go up or cattle prices decline a lot of this is is going to change um and so uh the the faster that we're able to turn this the the more likely this is to come true unless you're taking advantage of some of these uh these these price protection type of type of avenues that uh our producers have which you can see here this is a really strong indicator that that backgrounding heifers this year is is a is a there's a there's demand for it there's demand for animals that uh at that 800 to 850 pound range and that that again that finishers are looking for for weight being on the animals that they're buying so here are the six the six scenarios that were put together and uh just comparing them all side by side in terms of how many days they were on feed the profit and loss total per head okay and then the dollars per day profit or loss in in the one case and here we see that this this final heifer scenario the 2.8 pounds per day with 100 days on feed that's a really strong profit margin making about a dollar per day per head uh that they're out there so that's that's one of the better scenarios that i have and you'll notice that while you do make about as much money at 1.8 pounds per day in in terms of uh total profit per head uh the the dollars per day is quite different and that's simply because of how many days you have to keep them to get them to 100 uh 850 pounds at 1.8 pounds per day versus getting them to 805 pounds at 2.8 pounds per day so you can see that that daily uh amount of profit for the for the 2.8 pound scenario the 525 weight to 805 weight that's a that's a pretty strong indicator that that folks are paying for our producers or backgrounders to put weight on the animals themselves and steers again you know they're they're pretty strong uh there's a strong draw to do that too it's just that we you got to kind of be pick pick the correct scenario to to operate under and in this case the best dollar per day scenario is 2.8 pounds per day from 575 weight to 855 weight which gets you about 67 cents per day on your steers for a total per head of 65 dollars now feeding them all the way out to finish does make the most money per head on in the case of steers at 85 dollars and 43 cents per head but the dollars per day is 44 cents because they're on feed for so long you know 195 days so you do make total total profit per annals higher but your profit per day is lower and then again you got to think about the risk in the in the 575 to 855 weight category they're only on feed for 100 days in the in the 575 to finish it's it's an extra 95 days to be out there to run the risk of death loss and shrink and all kinds of weather issues that may slow the rate and and caught and wind up digging into your profits a little bit not to mention market situations and conditions that can that can change this too so the key points and the key takeaways that I kind of want folks to think about in in this from this presentation is that essentially cattle buyers are paying for weight they are they're looking at 558 animals versus 800 858 or even 750 pound animals insane you know we're willing to pay up for these heavier calves simply because there's less risk uh feed prices are relatively high right now I would rather get my lot full of uh animals that are closer to to being taken to market to to being fat essentially so I'm willing to pay and the price gap on heifers and steers closes pretty remarkably when you go from those 500 and 500 pound animals up to 8 850 it almost disappears entirely and it makes backgrounding heifers this year extremely attractive one one of the more attractive options uh in recent memory is is or at least since I've been doing these comparisons that if there was a year to background heifers and put the weight on as quickly as you could this is definitely one of them again a lot of things can happen in markets and so you know if you're going to do this it may may pay to take advantage of some of the pricing options available to you but right now it definitely looks like something that if you have the means to do it it money can be made putting weight on and backgrounding and then a few more key points uh putting on weight fast still pays uh even even at five dollar and 75 cent corn and and higher hay prices uh it seems like no matter I don't want to say no matter what I'm sure we can find some situations where that's not the case but it seems like that putting on weight faster typically winds up paying more and and part of it's a function of how these budgets are set up uh because what winds up happening is yardage fees eat eat into your daily profits pretty quickly and if you're keeping track of your own time uh wear and tear on machinery uh other labor costs if you have any kind of paid labor utility bills etc etc wear and tear on your facilities the longer the animals are in there the more of that those costs add up and so if if you're making money on feed it is always going to pay more to to you know if your feed if your returns on feed or positive just just weight versus feed it's always going to pay more to to basically put the weight on faster that's just kind of what these scenarios show and and what's been true for the last several years that and and even when when I've shown a loss the loss is smaller when you put on weight faster that's just that's been the case and and right now it is certainly true uh as has been in the past well I want to thank everyone for watching uh hopefully you were able to get something out of this presentation that helps you with any decisions that you might have been pondering or thinking about going from you know this fall headed into next spring as far as background and calves or selling selling outright right away uh you can see my email address is right there on the on the screen if you have any questions about this presentation or something you want clarification of I'd be happy to answer any questions that I can so thanks again for watching and hope you all stay warm this winter thank you