 Hello. My name is Brian Parman. I'm the Ag Finance Specialist for North Dakota State University Extension Service. And today I want to talk to you about backgrounding cattle and do a little bit of a budget and analysis for feeding cattle, holding back weaned calves and feeding and finishing them out yourself. I think we have a bit of an opportunity this year for that to pay, perhaps more so than it has in the past for a couple of reasons. Number one being we have a fairly unique scenario this year with a late crop getting into the field due to wet weather, then continued wet weather into the fall, one of the wettest on record, causing dry down issues, quality issues with wheat, and then of course a freeze up making it difficult to get that crop out of the ground and get everything harvested. And you couple that with, for the most part, quite a bit of grass availability during the year due to the wetter weather that we've had. And decent hay crops in other areas, not necessarily just North Dakota, but just speaking regionally in general, a decent year for hay as far as that goes. So what I wanted to talk to you about and go through some scenarios is the net returns or the returns to labor and management for feeding cattle out, feeding calves, retaining some of those weaned calves, putting weight on them and selling them into the future. And again, like I said, we've had disease due to the wet weather, low falling numbers with wheat and huge discounts and in some cases, you know, elevators don't even want it when the falling numbers get low enough. And so what do you do with it? Well, there's still some value in it, at least as far as an animal feed goes. That's the same thing with frost damaged crops or wet corn, those kind of things. What can you do with them? Well, they're still valuable as an animal feed and we have a year where that's coming into play. And then, of course, hay stocks. We've had some dry spots in North Dakota that notwithstanding it's been a decent grass year for the most part in the region and especially into the plains south of us. So that hasn't been an issue at all. And so this perhaps provides an opportunity for us to really think about a cattle retaining those weaned calves and putting some of the weight on them ourselves. And one of the other things to go along with that is there's kind of some distress or fear that this year might have a short corn crop and we won't really know the extent of that until places like North Dakota that still has a lot of corn left out there really knows what the yield is until we actually get it harvested. A short crop is expected, how short it remains to be seen, but one of the things that's done is depressed calf prices in the fall of 2019 compared to 2018. Not only that, but the fire down at the packing plant in Kansas has depressed some prices. And so when you look at the price slides this year versus years past, cattle feeders are willing to pay for somebody who's putting weight on their animals this time. And so we're going to kind of go through some opportunities there. So here's the price assumptions and the cost assumptions that we're using in this analysis. These you see here are price of hay, grass hay versus alfalfa hay, corn silage, grain, DDGs, limestone, salt and vitamins. We're going to operate under a yardage assumption of 35 cents a day, interest at 5.5% and these marketing and vet med costs are in dollars per head with a trucking cost at 75 cents per hundred weight plus a 3% shrink and a 1% death loss assumption. So these assumptions I'm showing here until I say otherwise or what we're going to use moving forwards. Now as far as the market prices for the weaned calf that you retain, which would be viewed as either an opportunity cost in the sense that you could have sold that calf for a certain price. Therefore, you should charge yourself that price for having not sold it as if you'd bought it from yourself essentially. And this is showing steers in North Dakota away from, you know, lightweight all the way up to about 150, 850 weight animals. Okay. And this is where I'm getting my prices from for both the weaned calf and then the future sold heavier weight calf. And this is the same. This just shows the same thing, but for heifers, obviously heifers are worth a little bit less per hundred weight typically. And this reflects that. And this is as of current as of Friday, December 13th. So these are the prices I'll be using going forward again as we go through these scenarios that I'm that I'm about to talk about here. So we're going to run six different scenarios in this case, three for steers and three for heifers. And there are with the steers, there's three different average daily gains. Okay. 1.8, 2.8 and 3.6. So the assumption is we hold them until we achieve this final weight that we anticipate selling them from going from five to eight hundred weight five and a quarter to 805 and then 575 all the way out to 1270. Okay. Then heifers, we have two scenarios where we're going to run 1.8 pound average daily rate of gain. And the first scenario is going to be a lighter weight heifer up to 750, a heavier 550 weight heifer up to 850. So the upper end of the replacement quality and then a 2.8 pound average daily gain from five and a quarter up to 805 pounds. So similar finishing weights and the heifers just different rates of gain and different starting weaned weights scenarios. Now scenario one is 450 pounds up to 756 pounds. That gives us an average daily gain of 1.8 pounds. All right. And days on feed of 170 days at an average daily gain of 1.8 pounds. So our market weight 756. So the beginning value of a heifer of 450 pounds is $140 per hundred weight and the projected sales price of almost $129 per hundred weight. So here's the ration on the right. You can see the table on the right shows a ration to achieve this daily rate of gain with the heifers. That's one of the options using grass hay corn silage and some DDGs mainly. And again, you'll see our yardage fee of 35 cents per day per head. Our trucking fee stays the same. So in our first scenario, we have a net return to labor and management of 90 and almost $95 per head. So you could think of that as your wage and other words that you're paying yourself your revenues for for actually maintaining this animal every day. One thing that's and so that's a pretty, pretty decent profit. You'll see there, like I said, almost $95 per head under the assumptions that we're operating under here. And again, those feed feed costs that I showed several slides ago under this ration and assuming that 1.8 pound daily rate of gain and all the way up to $756. So scenario two, in this case, we still have that 1.8 pound daily gain, but we're starting at a weaning weight of $550 and feeding them out to almost $850 weight. This puts them on feed for 165 days and our projected selling price and beginning values. So our beginning values lower and our projected sales price is close. But the ration is changed or the ration is similar, slightly different. And we have basically the same again, the same lot and yardage fees and everything else. This one, this scenario here, it does not pay quite as much as the previous scenario did, but close at almost $88. So this is nearly $7 per head less. The biggest reason for that being that the days on feed are a little bit different and the ration has changed some. But those two scenarios are both very similar. You're essentially putting on the same amount of weight or close to the same amount of weight and really the biggest difference there being in the price slide for those weight of animals. Explaining most of it as far as that goes. So our third scenario in this case is five and a quarter weight heifers to 805 pounds at a 2.8 pound daily rate of gains. So that's one pound per day higher than our last two scenarios. This puts them on feed for less time, 100 days. And in this case, the ration changes quite a good bit. We're feeding more silage corn or some silage corn, quite a bit of that. But we're also feeding corn for grain or grain corn, which a bit more expensive using that. But at the same time, we can see our return quite a bit higher here. Again, what this is signifying, a lot of this comes from this, not just the ration that's being fed and the relative cost of corn and these other things, but the price slide. If you go back and look, these 800 weight animals are selling pretty high compared to 500 and a quarter to 550 weight animals. And then the relatively cheap cost to feed as far as like silage and these other things. Well, that's basically, if you're able to achieve those prices and those costs in this rate of gain, you can see that this $114 is quite a bit more than our last scenario, which was in the 80s. And the other part of that is the less time that they're in the lot, you think about vet med costs and trucking in terms of dollars per day. Those are lower if an animal spends more time, or I should say less time being fed out. Because again, this is $10 per head. So when you think about the cost per day, these actually go down. So again, our net returns to labor management pretty strong on this high rate of gain heifer scenario. And a lot of that's because right now, you know, feed costs relative to the price of price of livestock is still pretty low. Now the market again on these on these heavier weight animals is pretty strong, not so not as strong on the lighter weight one. So we save some money on the opportunity cost and then make a little bit more money on the back end due to the higher value of cattle, heavier weight cattle. So our first scenario, which is scenario four in this case, but our first scenario as far as steers goes is taking a wean 500 pound steer and feeding them up to 800 pounds. Now at a 1.8 pounds per day, that gives us 167 days on feed, which using this ration here with grass hay, silage corn, no grain corn and some DDGs, salt and minerals of 79 cents per day on feed costs. We use the same yardage fees, the same interest and the same death loss and shrink. On the steer side we come out to in our first scenario putting 300 pounds on that animal over the course of 167 days at $48 a head. The biggest difference between steers and heifers being that with steers, our beginning value is quite a bit higher than it is on the heifers. So the slide goes back to that slide difference I talked about on steers. An 800 weight or a 900 weight steer compared to an 800 or 900 weight heifer in terms of dollars per 100 weight are a lot closer than it is versus a 5 and a 600 weight steers and heifers. So there's not as big premium put on the steers at the heavier weight versus the lighter weight against heifers. So we don't have as much return. It's still fairly strong at $48 but at the same time you could see that feeding heifers out for that amount of days yields a higher return. And a lot of that is in the cost of the animal when you first put them on feed. But we can see in the next scenario where we're putting on a lot more weight, the relatively low cost to feed. Our return on the steer gets a good bit higher at $76.81 so in this scenario we're doing a 2.8 pounds average daily gain. And they're only on feed in this case 100 days going from 5.25 to 805 weight animals. So for the most part our projected selling price and our beginning value stays relatively similar to the last scenario. But they're on feed less for less time and we're using grain corn in this case which is relatively inexpensive compared to the value of the calf. And as a result our return to labor and management on taking a steer from 5.25 to 805 at 2.8 pounds per day. We get a net return per head of almost $77 which is again pretty strong this year. Now our final steer scenario is taking a 575 pound steer up to 1270 on a 3.6 pounds per day gain. So this animal would have to be on feed under that scenario for 193 days. I took this selling price here of $120 per 100 weight straight from the futures price. Not from the North Dakota values but from the futures price and that comes out to $120 per 100 weight. That beginning value of $165 per 100 weight. And again our assumptions on everything else stays the same but our ration change is quite a bit. We're going to feed a lot more grain corn, quite a bit of silage for very little hay relative to the overall ration. Which comes out to $1.33 per head per day in terms of feed costs with our yardage again and everything staying the same. But if you look at our return to labor and management that comes out to $162.43 per head. Now one of the things with all of this as I'm going through it is of course if putting on weight is less expensive. And you're actually turning a profit by putting on this weight. It would make sense that heavier weight animals when you sell them is going to have a higher net return. So one of the things you might want to think about in this case is here and that's net returns per day. Okay daily profits and dollars per head going back to like what I was saying before. Our daily profits and dollars per head you wonder well yes if I sell a heavier animal and I'm making any amount of profit per day the heavier it is the more money I'm going to make. And what you see here though is that the actual daily profits per head goes up the heavier the animal or the relatively shorter period of time that you put the weight on. Because that yardage fee is 35 cents per day but what happens is the relative cost of feed that puts the weight on fast is relatively cheap right now. So doing these high daily gains of 2.8 in the case of the heifers and 3.6 in the case of steers and even 2.8 in the case of steers relative to 1.8. Those hotter rations that are putting on a lot more weight more quickly right now under our current prices. Right now that's paying out more per day than it is feeding them on grass type hay or a lower energy concentrated ration right now. That the daily profits are a lot higher in the cases of a hotter ration than more of a more of a grass based ration if you will. That the high protein high energy diets are really paying off based on again the futures prices as they are current calf prices and feed prices cash prices across the state. And this sort of just breaks it out there if you want to think about the projected profits per head. But one of the things about keeping animals on feed longer and then taking a gamble with higher feed costs is that there are some risk considerations that we have to take into account. One of them being the final sales price of steers and heifers. You know if prices of heifers or steers you know if they were 850 900 weight or whatever those prices continue to trend downward as these animals are on feed. You know that's a risk you take the longer you keep them on there so everything looks pretty good at let's say 75 80 cents per per pound per day. But again that assumes that the prices that I'm projecting in these budgets wind up being the final prices that you see when the animals sold. So the longer you hold them the more risk you take of prices falling but at the same time also the more risk you have of the prices actually improving while you hold on to these animals. So depending on which way you think the market's going you might see an improvement in terms of dollars per day gained or you might see a reduction. Then of course there's the feed cost risk feed costs can change the price of corn can change and if you don't have all of it contracted for the life of the animal which probably most people don't then there's a chance that feed costs can go up. Again we're assuming a constant feed cost but those things fluctuate into the future just like anything else and so there's a risk of holding on to the animals and worrying about feed costs increasing or possibly decreasing. And then our daily gain assumptions this is a big assumption here too because suppose we have some really cold or nasty weather over the winter and we feed them as if we're trying to get 2.8 pounds per day and we don't because the weather is poor we wind up with some poor animal health due to wet weather in the spring or something like that and so we have all these costs we're incurring but at the same time we aren't getting the benefit of the daily gains that we need. So these are kind of the big three risks going forward and I'll just kind of highlight exactly how those would impact the other. So let's just take our scenario five which is 525 weight to 805 pound steers okay to on our 2.8 pound assumption of average daily gain. So let's assume instead of being sold for $140 per 100 weight at 805 pounds let's assume the price falls from 140 to 125. So we're going to hold everything else equal we're just going to take the price down from 140 to 125. You can see here if you look in the lower right hand corner of both of these tables side by side so the one on the left is our initial assumption the scenario I showed before. The table on the right shows the returns if we go from $140 per 100 weight to 125 and you can see we go from a profit of almost $77, $76.81 to be exact profit to a loss of almost $40 per head $39.11. So just and we've seen you know we've all seen prices declined by 10 $12 $15 per 100 weight that can happen especially over the course of 100 days. It's it's it's taken a lot less than that in the past before to fall that far and you can see that's that's you know quite a swing that's well over $100 swing you go from a 70 almost $77 profit to nearly a $40 loss. That's that's quite considerable. So I just wanted to this just illustrates how sensitive this whole process is to the future price of calves. All right. Now here's the next the next illustration and this we're going to take the same assumptions as before this 525 pound 805 pound steer we're feeding towards a 2.8 pound average daily gain. But in this case we're going to assume we only achieve two pounds instead of 2.8 due to weather or illness or whatever the case may be. And again this one on this table on the left shows our return to labor and management of that almost $77 per head $76.81. And in this case by not getting that 0.8 pound and getting to instead of 2.8 on average, our profits fall from 70 almost $77 a head down to $19 a head. So this keeps those higher prices that $140. But our days on feed in order to achieve 805 pounds goes up by 40 days. All right. So you can look at it two ways. In this case I took the assumption that I'm going to keep feeding them until they hit 805 pounds one way or another. And those extra days on feed really eats into my profit margin. And I wind up at $19 and 31 cents because I had to keep them for almost five little over five weeks longer than I'd originally anticipated to hit that 805 pounds. It could it could be, you know, you might sell them early earlier and they don't hit the 805 pounds. Maybe it's closer to 700. But again, you're going to see a loss in that case because you fed them as if they're going to achieve a 2.8 pounds, but they only achieve two. So not as sensitive in this case as the price price drop in the in the market price for for calves, but still a substantial impact on that returns. And again, this is also sensitive to feed costs, right? If feed costs had been really high in our scenario relative to cattle prices, then this would have a much larger impact on overall revenues, overall returns. But as it stands right now, the futures price is more impactful. And then just a kind of a final sensitivity scenario, we're going to assume a 25% increase in feed costs. So the same as before 525 weight steers up to 805 pound steers 2.8 pound average daily gain. But let's assume that there's pretty shortly a 25% increase in feed costs. In that case, we go from $77 per head to $53.06 per head in total profit or returns to labor and management. So I kind of showed it in order in terms of impact. And the biggest mover, again, is going to be that futures price or that market price of cattle. What you pay what you charge yourself an opportunity costs or lost an opportunity costs versus what you're able to sell the animal for being the most impactful. Then those average daily gains being extremely important and then feed costs having an impact. Should they move one way or another having a fairly considerable impact, you know, we're talking about over over $20 a head here. So those are important things to consider. And, you know, one of the one of the big things here is that to be thought about, given how high the how large the impact is of the sales price, the final price of that calf that you sell, taking on some of these risk management tools like LRP or something like that, or working with perhaps one of your lenders to package some sort of futures contract or something like that, locking in some of these profits when you see just how impactful that final sales price per hundred weight is on the animals that you're feeding. So again, just some final comments and takeaways. Retaining animals under the current market and current prices given current feed costs makes financial sense right now. And again, a lot of assumptions are being made in terms of your ability, what you're going to get for those calves once you finally sell them and the prices of feed. But so far at this moment from the way things look right now, retaining weaned animals and feeding them out makes a lot of financial sense. And a lot of that's because cattle feeders are paying a premium for animals that farmers and ranchers have already put weight on for them. That's really what it amounts to. Yes, there's some lower feed costs right now, but the slide between heavier weight and lightweight animals is just not as big as it has been in the past. And again, money can be made by narrowing that price between heifers and steers by feeding heifers out. The relative price per hundred weight on heifers looks a lot better relative to steers, the heavier that they get. And again, the risk of that market price reductions being the largest risk that you're really going to take on in this case simply because it has the largest impact on overall profitability. And again, and finally, it's important to hit those daily rates again because even a slight increase in feed because of a higher ration having to be fed is not quite as important as hitting your average daily rate again target. Well, I want to thank everyone from watching. I hope hope you found this presentation to be informative. I have my information here on this final slide. If anyone has any questions or comments, feel free to email me or there's my office number there. Thanks again for watching. I hope that you guys are able to take something out of this and going forward able to make a little bit more money. Thanks.