 Hello everybody. Tim Petrie, NDSU Extension Livestock Marketing Economist. Today I'm going to talk to you short talk here on the backgrounding price situation for cattle, a little bit of outlook, and also a little bit about price risk protection. One little detail here that you should know is that I am recording this on November 12th and prices do change quite rapidly. So if you are watching this two weeks from now or whenever it might be, things could be quite a bit different calf prices of, you know, in the last month have went up $10 and, you know, the futures market is very volatile. So please keep that in mind. So this time of the year, we're wondering whether to sell our background calves and, you know, there's not a universal answer whether it's profitable. A lot of factors go into the decision. And two of my counterparts, Brian Parman, is going to talk to you about budgeting and break even prices. Obviously, your cost of production is very, very, very important. And outside of the price of the feeder calf feed is the most expensive cost that you have. And so Carl Hoppe is going to discuss that. So be sure to watch theirs too, because I'm not going to get in to the cost side, only the price side, but that's a big part of the puzzle. So what's ahead here, talk a little bit about some of the calf price fundamentals that I'm going to discuss. So this is just a quick overview. You know, both corn and fed cattle prices are very important in feeder cattle prices and, you know, what calf prices are going to be the next month. And also then what by a backgrounding of cattle prices, the 700, 800, 900 pounders later on, what they're going to be. Most of you are aware that corn prices have increased for a variety of reasons, smaller than expected supply and good demand from China and so on. We on the positive side, price wise for selling calves, at least the 2020 calf crop is in the US is down 260,000. We did have drought in the winter wheat grazing area, but now it rained, whatever, rain, snow, sleet, it did a whole bunch of things down there. So the wheat prospects are much improved. So that's sparked the demand for calves. You know, they are competitors to backgrounding, but they can graze calves much cheaper than we can background on purchase feeds or raised feeds up here. And so that's what sparked the market is they're back in the market down there with the better wheat pasture prospects. Corn harvest is finished early and so particularly compared to last year. So farmer feeders now are on the auction market seats buying calves the background. So that's sparked calf prices. And but on the other hand, the heavier weight to 7800 pound cattle prices have went up to and so calf prices and many feeder cattle prices have went up since mid October. The April live cattle, the other part of the picture again is fed cattle at about 119 today, but they drop off in the summer. So that creates right now at least a good demand for cattle that will make that April slaughter rather than later on in the year. We'll look at some of the big discounts or the wide range in prices of calves at markets and how that might fit into backgrounding and also heifers. So here's the drought monitor back in mid October and the heart of the winter wheat grazing area there is in that heart and you see how dry it was down there. And again, there was very little demand for calves down there because it was so dry and then a couple of weeks ago it did rain quite a bit two to five inches. In fact, Western Oklahoma was the driest on record there for a while and now the not and still in very, very Western Oklahoma and into the neighboring states still dry. But right in that heart of that winter wheat grazing, you know, the wheat was there. It was planted. It was up a little bit, but it was just not doing well. And now I just talked to my counterpart today down in Oklahoma and he said that they're buying calves and they're more prospects for putting calves on winter wheat down there. Here is the January feeder cattle futures and December corn futures here since the first of the year. And so really our attention for all through the summer was for calf prices was the COVID pandemic. And now it switched more to what corn prices are going to do are affecting calf and feeder cattle prices on more of a daily basis. So let's just go back there, for instance, to March and feeder cattle futures were up there at 148. And it looked like it was going to be a much better year for cattle prices in general. And then COVID hit in March and you see the January feeder cattle futures plummeted down to 114. But gradually then after April and the slaughter plants got back to working and so on. And we inched back up throughout the summer to a high there in mid August. And that's when corn was extremely low with the December corn futures down there at 320. And then again, we had the storm in Iowa and drought in Iowa and prices started going up and then China likes to buy low. So they started buying corn and other other factors there too that I just not going to get into here because I'm talking about cattle. But anyway, corn went up. And so then that put pressure on feeder cattle futures there after mid August declined back down to 125 there by mid October. And so again, these would be for these futures feeder cattle futures are based on 800 pound steer. So it looked a lot less favorable, although calf prices were lower than two, but a lot less favorable for, you know, only locking in 125 for January, February, March cattle coming out. But then you see there in the last month, they've increased pretty nicely back up to 141 on the January here and the March futures. So I think you know, we have to look at Brian's budgets and what your break even price might be. But I think we're back up where quite possibly depending on your cost now you can lock in or look at some profitable levels there. But again, look back to last spring and things can happen and prices can go down very, very quickly. So to keep that in mind when we talk about maybe doing some price risk management. So here's Omaha corn prices just kind of to put it in perspective, although Omaha corn prices have went up a dollar here since mid August. They're still up until a couple weeks ago were just about where they were last year. Again, last year is the dotted line and they did decline then had harvest pressure when harvest kind of still started some even though it was a slow process. But so we are above this week here up at $4 a little bit, but still we're not even though corn prices went up, we're not way extremely higher than they were last year at this time. That's one of the reasons why when we look at the charts, calf prices are almost identical to what they were last year at this time because you know, corn isn't that much different although fed cattle are down a little bit. So half the picture then on cattle prices is slaughter steer prices. Again, when you're backgrounding, you're getting calves up ready for the feedlot so they can go on feed to be slaughter steers and so a strengthening slaughter steer market into the next few months would be good for backgrounded cattle and supportive for the 800 pound steers that might be coming out. Fed cattle, the red line there really really struggled this year. We would have been probably a 120 average this a year if it wasn't for COVID and you see there that you know, there were a couple times there, there were below $100 even and and have not performed up to what we thought they would be because of the pandemic, but they've been increasing since seasonally low in July and even the last couple weeks and this week trading up at around 110 even reports of 111 and not sure exactly what they're going to average by the week and we won't know that till Monday but up around 110 and then the Dease Futures today are up there at 112 so that means a little bit of further increase still kind of below last year and then move along the February futures are up there 114 or 15 or so and so you know continued some improvement in fed cattle and that's supportive but again a lot of things affecting the market there particularly the restaurant and institutional trade demand for beef and we don't know what's going to happen with COVID so there certainly is risk on that side as well so move along then to calf prices and again if you're selling calves you want higher prices I suppose if your backgrounding calves are particularly buying them for a backgrounding program you would prefer lower prices and more on that in a little bit too but again calf prices the red line there is this year and you know they would have been 180 in April like they have been the last three years and they were at 176 there before COVID hit in early March and then of course they plummeted down there and again kind of underperformed but have not been that much different than last year and again if you're selling last year wasn't the best year ever for sure and and for a longer term situation I know we're talking about backgrounding here but I think after the spring when we'll start off lower that that blue line there of 2018 will be more what it'll look next year but again COVID and corn and a lot of things play in there and so you know on the average there we were about 158 on calves this week but a lot of a wide wide range in prices and I'll show you that in a minute and you know I think we're going to level off here again depends on does it keep raining in the week crazy and what happens to corn but usually they kind of level off here as you'll see the last couple of years and so you know I you know I'm just don't see anything that would cause them just to spike way way way higher here and then in the next several weeks I guess then of course what we're really interested in backgrounding or what are these seven eight weights going to be here in in February or whenever you're going to bring them out March even possibly towards the you know January whenever your backgrounding programs are and so you know going on the red line there again as they underperform because the pandemic and similarly October 15th we were low there and then I have been increasing the last several weeks up to near 140 and the the November feeder cattle futures there right up up today about 140 dollars and go in we have a January feeder cattle that we already looked at up there about 141 and and similar into March so that's kind of what you're dealing with in terms of price risk management or what the market says they'll be now but be just be aware that other factors do affect the market and fed cattle could struggle and with COVID and everything so right now it looks like these backgrounded 788 steers out could could be in that 140 area but there is risk here's the this week's market report for the three markets at USD reports in North Dakota that's Napoleon Mandan and Dickinson and a lot of prices on here lightweight calves of course one reason for the winter wheat demand are are high and and and but let's just go to take a 550 to 600 pound steer then you see that wide range in prices there from 143 up to 173 so if you're buying the 173s it'd be maybe tougher to make money backgrounding unless we see a good spark in the in the heavier weight market or maybe go down and look at some of those lower prices in that 145 area or whatever where you can add value to some calves that maybe haven't had shots or are not weaned and so you could wean them and and so on and and pick up some money that way and so again on the average there were about 158 but a wide range and in prices there the other thing that I commented on before is you know there is a discount for heifers about $20 now on the 550 to six weight heifers so we always do background a lot of heifers in North Dakota and I think something could consider again because every 50 pounds we gain they gain heifers they gain price wise compared to steers till we get down there to those 800 pounders you see there's only a three dollar discount to steers and you get up to the slaughter weight steers and heifers are the same price so you know we can gain on price there as we add some value to those heifers as well but again there are replacement heifers selling very well and so might be tougher to buy those expensive heifers and and make money backgrounding but again it all depends on your costs and so look at those budget I think Brian is going to give you budgets for steers and heifers just remember that the seasonal price pattern for backgrounded cattle 7 to 800 pounds would be lower in the February would be a normal seasonal occurrence from now and it's not saying that they're going to go down this year or whatever but that is the seasonal tendency which would then say that price risk management might be something to look at there are a lot of price risk management tools are not a lot but there are a number there and whatever you're familiar with and maybe have used in the past you might want to consider them again you know such as cash forward contracts or the video options there is the CME futures and options market but again it's 50 000 pounds and and and you need to know what you're doing there and the market has been volatile the usd has made some significant improvements to livestock risk protection insurance so i'm going to spend a few minutes talking about some of those improvements that might be something for you to consider in your livestock risk protection program excuse me so here's the january feeder cattle futures that i showed you before and the CME cash index which is the average cash price in the us which is again we'll see in a minute very similar to north dakota but we're up there 141 on the futures and other risk management kind of feeds off from these as well and you know they they have improved though quite nicely to offer probably some price risk management opportunities our calf prices here follow the futures quite closely particularly the i-94 markets are about on par with the CME cash index and futures of course if you're up in northern north dakota would be a little bit lower so here USDA has made like i said some improvements particularly on premiums premiums for livestock risk protection for many years were 13 percent subsidy and in the last several months here usd has increased those and the last one effective on september 14th they raised them up to these levels here so different coverage levels at the 95 and above coverage level 35 percent subsidy which is a lot more than the old 13 percent get up to high subsidies on the lower coverage levels and and if you already had an lrp contract after july 1st then at a at a lower subsidy than this actually the subsidies are retroactive back so these are the subsidies we're dealing with here's today's offering for the over 600 pound backgrounded feeder cattle and again the usd website has several pages and so i just took the the 13 week contract here puts us into february 11th that's the closest that we can get and and so the expected ending the expected ending value today was a little over 140 again right at what the futures are usd offered a 138 58 price the highest price there for february 11th and and the premium then would be 343 and then as we lower the coverage price you get lower premiums and so that's something i think that you should consider a lot of people say i think i got to lock in that highest coverage price so that my chances of getting paid are better but we don't buy insurance hoping to collect and we buy insurance for protection and in this case for a floor protection so again it all depends on your costs and brian's going to go through a budget with you but say your breakeven price is down there possibly 134 133 or 134 again you need to discuss this with your banker but you could go down there and and get a lower coverage level to cover all your costs and and have a floor price at a breakeven level for a dollar less premium there and and even go below that then the premium even goes up if your breakeven price is down around 130 you could get an even cheaper premium there so it all depends on your costs you have to consider and then what level of risk you have and and how many you want to do so some simple steps to lrp and some other changes here again you have to buy it from your livestock insurance agent which is also your crop insurance agent the new information doesn't come out till after three o'clock usually like today 345 maybe closer to 330 to 4 and the nice thing about lrp is unlike the 50 000 pound futures market contract here you say the number ahead you want to do there's a one head minimum so you can just do a cup of you and and and see how it goes and and ratchet up or you know however you want to and you can do up to 6 000 head on a policy up to 12 000 head a year but you can just do a few head here and then you pick that policy length whether it be at february or then you know into march or into april show you an example in a minute then again you you estimate to what they will weigh 670 or 740 or 800 whatever and that's what you pay your premium on and what you get paid at the end regardless of what your cattle weigh at the end that doesn't matter you have to pick a weight here then choose that coverage price and the other change here is we used to have to pay the agent up front but the recent change now is that we don't have to pay the premium atel maturity like other crop insurance products and the the time that you do this is from four in the afternoon until nine in the morning unlike the futures which are during the morning hours and you know here's then just some steer and heifer examples into other months with the one that i showed you the february 11th on top and heifers are always the price is always 10 lower than steers and so then you get a little lower premium but week you know the the 13 week is into february the 17 week gets us into march so you can do a march the next higher up is into april you know premiums go up and no longer length out and even can get a little higher price there the current lrp cash price 13670 so we can lock in a little bit higher price than that so that was kind of a quick run through of what prices are and in some price risk management strategies again i can't emphasize enough how volatile the market has been the last year and i expect the volatility to continue so certainly this including some risk management might be prudent for you so i'm going to wrap things up here and and stop and if you have questions that you know when you get a hold of your extension agent of farm business management record if you want more information here get a hold of me so good luck in your backgrounding program we do do a lot of backgrounding in north dakota and i think we're going to do it again this year so uh good luck to you