 Yeah, I'm John Dewbetter. I'm at the North Central Research Center in Minot and as we were putting together thoughts of this program tonight we Figured we better address the price outlook the cost structure and then pull together with some budgets So we'll be a little out of order here, but Carl will fill in Each year come this time of year It's the kind of we're in the decision mode of what looks good what will work and every year has its own peculiarities and earlier this summer everybody kind of had the conventional wisdom that We might want to mute some of the mics at some of the other locations Conventional wisdom was a calf prices are really high and there'll be a lot less Backgrounding as their might should be because with those high prices There won't be a lot of incentive or margin left to grow them Especially considering that the feet prices are high as Tim has shown record for corn for the year But as we take a little closer look at that as Tim was eluded, maybe that's not the situation Certainly calf prices really high anybody wants to sell their calves get the risk off the table put some cash in the bank Good for them. It'll be the highest price They probably ever sold their calves for and you can't knock them for doing that But if you got a good stack of hay and you're used to feeding calves You like to feed calves you're comfortable feeding calves and that hay is not national average $200 a ton Hey, it's North Dakota average at $53 a ton other hay. It makes quite a bit of a difference As Tim showed us we got rising future prices. We also know we got low operating interest rates The southern boys don't aren't fighting us for calves And they're not gonna let our market when we background them so that has some marketing implications and probably also is If this her is going to expand maybe we want to have some inventory and maybe some heifer inventories all right to hold So that's kind of how I see the situation for this year being different and Optimistic and I put some slides together really quickly today because I was fighting computer troubles And I might have made an error because I it's more optimistic than I tend to be But when you talk about background, of course, there's so many different things we're talking about some people have four weight calves Some have six seven weight calves some feed for 45 days just to get them preconditioned some feed them tell grass Some do heifers on hay alone some push them out at three three and a half pound gain Different rates of gain different lengths of feeding period different market timings Some people buy cattle and place them in commercial lots custom feed them for most people Backgrounding is doing something at home with your own calves So there's a lots of different versions of this and I hope that we can play with a few scenarios that touches with just a couple of I guess we all know that as you hold this add additional costs and hold this inventory and value there's risk and One of the risks is you know, you can lose calves and as we look at Historic records of percent death loss and backgrounding operations. It really isn't very high It's about point three to point seven percent a year So an individual guy can get a high risk stress at a calves It could be much higher than that, but that is not with a good vaccination program Good receiving management some stress management. That's not the huge risk poor performance That's never quite as good as we want so don't know why we didn't get to we only got one six Yeah, and that impacts you because then your conversion goes bad and That's knowing what your feet is Balancing your ration adding the right supplements doctoring it up And I think we can get pretty predictable on performance other than some bitter cold period some event That we have to probably recover from was a competitive or a gain The one that scares me to death the most people is the following market This year we got the outlook that we might have a rising market, so let's move right on If we look at historic returns from backgrounding and this is from the adult farm and ranch management summarized over these last 10 years Probably about 80 90 operations in the state a year that the good enterprise data to do this There was a year back in 2007 where there was $10 headlosses The spread between when calves were valued in Backgrounding and when they went up was over $21 spread they dropped If we drop 20 bucks a hundred weight, it's hard to make money backgrounding last year. We had a rising market Backgrounders did pretty darn good if you look that over the long haul it's about $25 We're gonna start budgeting We got to kind of put a value on what we got to start with to know if we're gonna add some value or make some Money with it So this is the same chart that Tim had North Dakota price summary from last week and I'll use some of those numbers as a guide as I do some budgeting I Through the heifer price is kind of over on the side And they don't match up line-for-line with weights But those at the top of the light three and four weights and those at the bottom of the thousand weight heifers I Think it's kind of interesting when they get a thousand pounds and over. There's not much difference in their value But back over there when they're 400 pounds We're talking heifers at $1.41 and steers at $1.61 Nobody seems to get too excited about light heifers They're really discounted and so I bring that out just because if you got light heifers Maybe you don't want to give them away Here's the actual heifer data where you can see the actual weights next to there's got to be a little bit of an error on that 450 a pound one. I think that was the type of Second line down In addition to getting a realistic idea of what they're worth and these market reports can help you quite a bit Visiting with your neighbors know what contracts are going for sitting in the sale bar in a time or two But then you also got to get some kind of indication of how you're going to value them when you build your budget going out It's Tim suggested. We got some real strong futures prices all the way increasing through March All the way through next summer. There are rising outlook How close will our cash prices monitor those big question things will change they won't stay the same these prices And they're sometimes a basis when we get up north and have some trucking differential and So forth that might be four or five dollars a hundred weight in a budget. We got some costs Our direct costs for those we spend just because the caps there were taking care of it out of the $95 a head that was used last year as an average direct cost number in the adult farm management records I added up the feed was seventy seven dollars of that So feed your main cost you got a little veterinary got some fuel some operating interests maybe some marketing charges Those are kind of minor compared to the feed bill then you also have some overhead costs and these On farm backgrounders where they're trying to allocate some of these overhead costs are I guess it might be a little bit of a challenge at time True you know how much the utility bill went to the calves to the cows to the crop drying and so forth giving up the insurance premiums How much of your machinery cost or payment or depreciation is going against? Backgrounders, but that was at $11 in last year summary for my budgeting. I made a bunch of assumptions I said that kind of feeds. I'm gonna keep it real simple. We got good hay That average hay we got concentrates good hay is that stuff that's early cut grass alfalfa Maybe some alfalfa testing 58 TDN Average price in North Dakota alfalfa hay is seventy some dollars a ton. I put it in at 80. I Put the other hay 54 TDN at 60 and I said corn at six bucks a bushel Well and Tim said it's not six, but maybe by the time you get it home and process it and mess around with it at six bucks I got that at 215 and if you want to buy wheat mids or do something else or buy sprout pellets or buy gluten or distillers It's all going to be comparatively priced to corn. So that's my concentrate number Now it'd be nice in some years. We have abundance of dollar fifty wheat Two dollar corn because it's damaged. I haven't heard of anything other than some pigeon grassy screenings for 40 a ton There's just not a lot of stuff Surfacing yet. Maybe some green beans will or some Then you got to know the kind of ration you're feeding based on kind of the gain and how rough it is and how Concentrated it is how much feed it takes to put on a pound of gain This isn't a perfect chart, but I've got if you're only getting a pound and a half gain You're probably converting at 13 or four to one now if you get these calves really smoking along at two and three quarters It's probably seven and a half to one or could be slightly better than that even and so I just incrementally Put some conversion numbers that I used when I made my budgets Lot charges charge you to dime if it was at home that's your overheads cost per day per calf And if you go to somebody else to do the work so that bottom return doesn't include labor and management It just includes return on your equity Well, then you're gonna pay someone 35 cents or more or less Interest at 6% death loss at 1% vet treatments 10 per head and I just lumped marketing trucking your beef commission You're holding to market your 2% sale fee at 25 bucks a head Kepper kind of simple. Here's Steve or Steve. Here's Tim's Base budget he has on his website his spreadsheet Making $77 gain in 2.77 ration costs $168 a ton. They're converting it 7 to 3.3 Big cost 61 cents per pound to gain Total cost to gain just under 90 in the total amount you're going to spend per cap Not less his purchase cost is $176. I Said average is 25 most years when you project them you can wiggle the numbers to get 25, but you usually don't get 77 Buying price is at 139 at 550 minus the shrink of where you're starting to put the game back after you get them all home on 11 and that calf would go to town January 18th the futures price is a buck 45 for that month But Tim use that in his budget and so I use that And he said if we went to there we would double that Okay, that's kind of your traditional background About two to three months in the lot put on about 200 pounds use quite a bit of grade and some forage Well, I already suggested that some of these light heifers might not be a bad thing to have around Especially if you got them and you don't want to give them away So I put some 475 pound heifers in this budget and I valued them at $1.35 on the 1st of November Now you said is that what they're gonna sell for 475 pounds for $1.35. Well, that's what was in that last market report So if you sold them last week at one of those markets was reported you probably got something like that Next week it might be 10 under or 10 more. I don't know and then I said well We're gonna feed them some of that $60 ton hay And we're gonna feed them some of that little bit of that $215 concentrate and They'll gain 1.6 on that a day That ration is not 168. It's 115 because it's got a lot of you know, $60 ton hay in it They're gonna convert quite a bit for 13 And we're gonna sell them at $1.35 at 750 pounds next April. How'd that work out? $81 well that stay that way if feed stays that way and calf stay that way not for very long So if you got to lock some of these in if you think you'll keep that picture to last longer than a blink What's that you could put more weight I was trying to get them to a breeding weight a lot of hay We put on 275 pounds over I don't know hundred and some days Another approach is and this is an approach that people do with their own replacement ever sometimes they're a little bigger These are sorted off for keepers 550 pounds We got the good hay set aside in a heifer haystack So we're not gonna feed them concentrate We're gonna feed them $80 ton hay plus a little vitamin mineral salt. So their rations only $85 ton ration But when we give them that good hay About the best we can hope for is probably 1.2 pounds And so to get them to weigh 750 pounds we got to go clear out the jeweler Our cost to gain feed cost gains a little higher our total cost gains a little higher because they're just not enough gain there Relative to the maintenance cost, but we still project if we could sell them at $1.32 out there 750 pounds $56 profit So I've got two scenarios with heifers that looks like you can make it work One is using Some grain and some poor hay and one is maybe doing just very minimal feed input But most people are more likely to concentrate their marketing and their feeding on the steer. So let's look at a few steer examples I know everybody's calves way different and Cab different times and wean different dates, but there's a lot of calves. I've heard contracted around 626 and a quarter We got a lot of good growthy calves So you got them six and a quarter calves I'm hearing some bids in the dollar 40 range on those So i'm a little higher than done earlier And if you look at that market report, maybe that's just a tad high for what went through the market last week Let's feed these good. These are the good calves We're proud of them. We want to get them big quick like we normally do. We want them 850 and so That's our target market weight And so we got a 185 ton ration 7.5 conversion And we'll say there's no spread this thing's flat We sell for the same price we could have sold them then but now they're 200 pounds heavier And we got a 93 dollar margin right there And that's feeding quite a bit of corn to keep them moving that fast 69 cent feed cost to gain kind of high but putting on quite a bit of gain quite a bit of weight And we're building a little margin in it We don't have that much feed grain around or we're going to ration it out But we got more hay. We want to slow them up a little feed a little more of our better hay We could and we had a little lighter calves. This might be a scenario 550 pounds calves valued in at a buck 50 gain and a half pound less at two and a quarter per day On a ration that has a little poor conversion, but a little lower cost per ton Take them to 800 pounds because they're gaining slower. We want them out in april before we go farman We need the money got to buy some expensive anhydrous We'll sell them sell them at a buck 40 Futures at a buck 46 at that time What's wrong? There's only 43 bucks in this one Because you're paying wages of the lot charge Right and this one I threw in a lot charge of 35 cents and so somebody else Is making 30 more dollars or close to 40 dollars on this calf And if you want to put your 10 cent then we can put it back over any other column Well, we can even slow these things up more And we can keep them home feed them more hay and you see we're still in a profitable margin But we're starting to slide a little bit when we don't get some weight to more offset some of the maintenance costs And we're getting way out here till june before we have something big enough to market if our target weights are up there But being the futures price is holding It's still a profitable scenario Well, I said things won't stay the same I mean that it can look good tonight and it maybe didn't look good last week And I don't know how to look tomorrow Corn will go up cattle will go down feed will do something futures will change So if we're going to start protecting something we probably better lock in the feed Now if this is a haystack and it's not very marketable other ways because you didn't net wrap it or square bail it or You can only sell it to your neighbor or feed it to your own cows Well, that that's kind of firm But some of the other deals if you're buying the corn now might not be a bad time to get some in the bin Or on this market, can we afford to spend some money to protect that market? Well, this is the option price is to buy a put that gives you the right to sell that futures contract And a lot of these scenarios had a break even in the high 120 130 and the cost to buy A dollar 32 Is under two bucks So we can certainly protect a break even without a lot of money Now if we want to lock in the hundred dollar 46 or dollar 48 We're going to spend quite a bit to do it. And so we'll in fact only be locking in maybe $1 42 or $1 43 But we have enough return in some of these budgets, which is kind of rare That you can actually do something and not give away everything which is the normal case What I did today, we just did in my office with a few little tools I used the cow bites ration formulator Some of you have it or you can go see People like myself or extension agents and throw some numbers in there to see what will make a a ration Look like it'll make cattle perform the way you want But there's a thing on the web called calf web google it and that's a little break even calculator Let you punch some numbers you can go to the cme website you can get your futures or an option quotes You can go to tim petrie's page in the issue livestock economics. You can get this Budget spreadsheet or you can get those market reports pulled off directly from there So I know it won't stay the same tonight looks probably as good as it might look all fall But it does look like Backgrounding certain classes of cattle certain management styles can give you a pretty good return