 Hello, everyone. Tim Petrie, NDSU Extension, Livestock Marketing Economist. Today I'm going to visit with you about the cattle price situation and outlook, particularly at pertains to backgrounding. In other words, what are CAVs worth at the present time, and then what are our expectations for CAV prices when they're backgrounded in January, February, March, whatever it might be. A little disclaimer here. I am doing this on November 9th, and prices are changing as I speak, and so depending on when you listen to this, prices could change, and then you will have to take that into consideration. So this time of the year usually producers are making the decision of should I sell CAVs, put them on a truck, and wean them on diesel smoke going to the auction market, or should I put them in the lot and try to add value to them. Unfortunately, for some of you at least, maybe many of you this year, that decision has already been made because you're sure to feed and are saving those resources for the cowherd and are unable to background. I do encourage you keeping as many cows as you can, because we expect prices to continue to increase for the next several years, so important to keep that cowherd. But if you would happen to have access to feed resources, just because feed costs are high doesn't mean that backgrounding is not profitable. So if you have feed and space available, you certainly should consider backgrounding and there definitely is potential depending on your cost. And Brian Parman is also providing information on budgeting and some break-even prices and so on. So I do urge you to watch his slide deck as well. So here are some backgrounding price fundamentals, just some overall things that we're going to consider some of these we're going to cover in more detail, but just kind of to set the stage. Both corn and fed cattle prices are important in determining feeder cattle prices, and they're the two most important factors. And corn prices are high. They're $6 at Western North Dakota ethanol plants, twice as high in some cases as they were last year. And hay prices are also high because of the drought that we had in North Dakota in one of the severest droughts in history. But on the other hand, fed cattle prices are the highest since 2018 and are expected to continue to go up. We have a smaller calf crop that's supportive to feeder cattle prices. And looking at the April live cattle futures, which is something that feedlots consider when they buy backgrounded calves. April feeder live cattle are up at 140, and so there's a good demand for over 700 pound steers. And June live cattle and August are off a little bit, which might have affected lighter weight calves. But anyway, feedlots want to buy weight when prices are high. So there's a really good demand for backgrounded cattle, and that will continue because corn will likely stay at these levels. And so both corn and cattle prices are volatile and they are changing again as we speak and more on that in a minute. So it's important for you to compute those costs and develop budgets that Brian is going to talk about and do your own penciling. And also since both the corn and feeder cattle market are volatile, you'll certainly want to at least consider some price risk management on some of the calves, if not all of them. Here is a chart on Omaha corn prices, and corn prices have been quite volatile as I said before. I like to use Omaha corn prices because that's where there are a lot of feedlots. Nebraska over to Colorado and back to Iowa that buy our backgrounded calves to finish. And so corn is certainly an important part of the equation. And the other thing is when we change corn 10 cents a bushel, we usually change fall calf prices a buck in the opposite direction. So we have that opposite relationship going on with corn and feeder cattle. And you see how volatile the corn market has been this year, just the cash market. And it has inched down there in the last couple of months, but still higher than last year. And that does not mean that we can't background calves because simply we have to look at at all the other factors what are calves worth and what are expectations for feeder cattle coming out. This slide I think helps depict that opposite relationship between feeder cattle and December corn. And are there some potential for maybe some price risk management as we go along if we can get on some of the rebounds when the futures occur. But again, the opposite relationship is evident. I talked about May before the green here are closing corn futures prices. And then the black lines are the high loan closed for the day for January feeder cattle. And the corn is the Dees corn futures contract and nearby. And so there in May you see corn shot up up there to 635 a bushel and correspondingly feeder cattle declined. You know, they were up there around 162 and crashed down there to 148. But then corn came down, feeder cattle went up and you see that opposite relationship just in the interest of time. Let's jump to the last month or so. Again, we started off in October that corn and had a little rally there and feeder cattle down to about 154. But then as corn declined, feeder cattle climb backed up to 162 or so. And then corn went up again. So feeder cattle fell and then in the last week, corn kind of reached a peak. They're the highest prices they'd had since July 2nd. They came off of those highs and that allowed feeder cattle to rebound up there to January feeder cattle back up there close to 160. I do know some astute producers that background cattle that went earlier there in September when the futures market started falling there. You know, we're in that mid-upper 160 range. They said, hey, I have not sold steers in March at that price level for a long time. And I'm thinking maybe I should pull the trigger on some of those prices. So I know several that bought LRP contracts then to at least do some protection and more on that in a little bit as well. So the calf crop has declined for a couple straight years. We'll decline again this year and so and even probably next year. And so that's supportive to the overall price level. Again, what's important in the backgrounding is that since it's a margin business, what do calves cost me? And then what are my expectations for prices? But the level will be higher than we have experienced for both the last couple of years. And so start off here with then with slaughter steer prices. And that's the other part of the equation on what feeder cattle are bringing and what our expectations would be into the spring. Again, when you have backgrounded cattle ready to sell in January, February, March, whatever it might be, the feedlots buy them based on what the futures price is for when they would finish them in those lots. So it's important to look at those fed cattle futures, just some housekeeping details here. All the charts I show you have the same color code. So on the bottom there you see the blue is 2018, the green is 19, the purple is 2020 and the red is this year 21. And so, you know, fed cattle were really low last year, the purple due to COVID. But then they started bouncing back, started the year, the red line there about 110 below last three years, but have just gradually picked up and by June got above the last three years and have continued to march up 130 last week. And the expectations are for that to continue. There's the Dease futures up there at 132. And so, then again, what's important is for us to look at next year. And so, you know, we see those, you know, up to 140 there by April. So those heavier weight calves that can make that market. But again, if we're backgrounding and not selling till March or April, we're interested in towards the end of the year of what fed cattle futures will be. And they're back up to the 140 range there, higher, quite a bit higher than the last couple of years and higher than where they're going to end up this year. So that does bode well for our spring feeder cattle prices that we will look at. Here we're going to look at 550 to six weight pound calves there in North Dakota at the markets reported by USDA. Those markets are Napoleon, Mandan and Dickinson. And so, again, the color coding is the same there and just concentrate on the red line there. The movement was similar to fed cattle and we did see improvements throughout the year up until September when kind of our seasonal pattern sets in. And we, as the calves hit the market and they come off a little bit, but still, they're higher than the last two years in mid-October, the last couple of years way down there just, you know, under 150 and this year 15 bucks higher. So calf prices are higher. We expect them to continue on that blue line into following that 2018 trend and into next year. And so, you know, on the average, that's what we'd have to pay more on that in a minute, too, because they're at a wide range in calf prices. But just because they're higher than last year again, does not eliminate the backgrounding situation because we have to look at what the heavier weight cattle backgrounded cattle will be in February or March or whenever we sell them. But anyway, the entire cattle complex prices are expected to continue. So yeah, let's go to these eight weight steers, 750 to eight weight steers and look at the situation there again from this year's price trend, very similar to the other market classes that I just talked about, general improvement throughout the year by mid-year getting up to those 2018 prices and following along on the 2018. Higher than last year, there is a futures market for feeder cattle. And so, you know, looking at the November, October futures there and at 160, we kind of expect them to hold. Importantly, then, is if we put those 556, whatever calves in the lot and keep them into January, February or March, what are our expectations? Here's what the futures market is trading at today, the January at 160, and then we get up there to, you know, over 161 for March and over 164 by April. And so that's what the futures market is saying. And, you know, right now, I think for planning purposes, I'm throwing out about a 155 cash price. Let's kind of consider there a little bit above 2018 and a little bit below the futures, but that's what I would consider a planning price to use now. And we will look at some price-risk management in a minute. And again, yeah, we can get 155 or better with price-risk management. Here's the market report for last week. And from a backgrounding standpoint, I could spend a long time talking about this, looking at potential opportunities and stuff. But I've got a limited time today. And so again, this is the market report, the average for those three markets that I discussed. Let's start with the top there, where you see that purple arrow going across and looking at the lighter weight, 430 pounds. Steers there bringing 199 and their heifer counterparts over there at 430 pounds only bringing 161. We do background a lot of heifers in North Dakota for good reason because of that severe discount. That's a $38 per 108 discount over steers and $163 per head, cheaper heifers. So every 50 pounds that heifers gain on steers, every 50 pounds up, they gain prices and just follow that through there. They get the margin between steer prices and heifers continues to narrow till we get down to the bottom, the purple arrow there. $950 weight steers and heifers sell for the same price. So you get the same price for the heifers and steers when they're 950, but you got 163 bucks cheaper to start with on the heifers to work with. Now I realize there's some management issues with heifers and they might be a little bit more inefficient, but you got a wide margin there to work with. So again, we do background a lot of heifers in North Dakota on January 1st. That's the fifth largest number ever of heifers on hand and so certainly look at that as a potential background and I know a lot of you do. The other thing, if you go to the middle of the steer chart there, the purple circle there is the 550 to 6 weight steers, $1353 sold last week. And then you see there's my average $166 that I showed you on the feeder cattle chart. But look at the wide range in prices there, $147 to $180 for the same weight and greater calves at the same market because a lot of different factors affect calves from the information that's provided. So maybe they're not weaned or they have the appropriate shots and so on. So from a backgrounding standpoint, some producers prefer to purchase them down towards the bottom. Maybe they're not weaned and don't have shots, so then they wean them and give them shots and do the other management necessarily to add value to them. And in the backgrounding and put a bigger bunch together and make more value when they come out in January, February, March. On the other hand, if you look at those $180 steers, if that's your steers that you're pricing into your backgrounding or if you're buying and then you've got to have some pretty good prices at the end because you're buying more expensive calves. That's all considerations. The other thing is there on the steers, you see that green circle there because a high feed class feed lots prefer to buy weight rather than the light calves. And so many years we see as we move to higher weights to the sixes to the sevens to the eights to on down. We see a discount at every price level, but this year not much discounted at all. Starting with those 625s at 161 and, you know, still moving on down to the 750s at just 153, 155 on eight yards even got some fancy eight hundreds at 163 more than the 600s and still at the 875s up there at 157 very similar to the 675 weights. And so again, the reason for that is there's a demand for heavier weight, paying for weight for backgrounded calves. And so that's again something to consider in a backgrounding program. Here's the seasonal price index, a 10-year seasonal price index for feeder cattle. I have your weight, 78 weight feeder cattle, and you see what this is in an index. So if you go across from one, that's an average price for the year. So if the red line is above one, it means they're above average prices for the year. And if it's below one, they're below average prices for the year. So the seasonal pattern is now from November into March or whenever we might sell them that the seasonal pattern would be some decline. I know the futures is showing better prices and that's the expectation. But again, this is kind of a seasonal risk thing that we need to look at. And you know, hindsight is 20-20, we know about 20-21 and so on. And now let's look ahead to 20-22. I'm sure the market's going to continue volatile. A lot of issues with drought and what our corn price is going to do and fertilizer prices are going straight up. And so how much corn is going to get planted next year. The closer we get to spring planting and that could be by March, the planting intentions report comes out and so on. So and we get into next year and what's the Brazilian crop and the other everything that affects corn prices. They're going to remain volatile and that's going to mean feeder cattle remain volatile. So I think if we're backgrounding cattle and may want to think about some price risk management, particularly the later on that you go out there. And so there are some things that we can do to help mitigate the risk and sleep better at night. Possibly could do a cash forward contract with a feeder cattle. So we have the price locked in. There are video and internet auctions that price cattle for delivery into future months. I do have like we already mentioned the CME futures and corresponding options market where you have strike prices and so on for feeder cattle. If you're familiar with using those, I'm going to highlight livestock risk protection here today. The USDA has made some very nice changes in livestock risk protection in the last year to make it much more usable. And like I mentioned before, I'm aware of a number of producers that never used livestock risk protection before that have done it already this year for their backgrounded calves. So, you know, just you are familiar with different ones and the ones you might feel the most comfortable with might be part of your marketing plan. Here's March feeder cattle futures again and then in the black and the CME feeder cattle index, which is all seven to nine weight feeder cattle sold at markets reported by USDA. And that's what the feeder cattle futures closed out them when the March feeder cattle close there the last Thursday in March, the two will be the same. But there we are again up there close to 161 for March feeder cattle futures. And and so, you know, if you like to use the futures market or used of it, that's what we can do at the present time. And, you know, the basis along those I-94 markets is about par in other words 800 pounds tiers when the futures market closes and with that cash settlement price tend to be about the same again. Have some discount up there along highway to over the high 94 I-94 markets that a couple dollars to take into consideration. So again, just visit with you a little bit about the changes that have happened to livestock risk protection. The subsidy rate has increased quite substantially for many years. It was 13%. And now it's been increased to depending on your coverage level 35 to 55%. And that's what's triggered more use this year and even triggered use for calves. But it's too late to use LRP for the for the calves being sold now, but still time you can do February, March, April contacts. And I'll show you in a minute and and I'll show you the subsidies. The other thing is one kind of restraint from using LRP in the past is you had to pay the premium upfront and now you don't have to pay until maturity like other crop insurance. Here is, you know, last night this came out was valid for that until this morning and new one will come out this afternoon. And again, whenever you listen to this very LRP contracts come out about four, four 30 in the afternoon and then are valid until nine the next morning. You have to go through your livestock insurance agent, which is your crop insurance agent. But here's what's available now for March, just March 7 as maturity date. And again, it just goes keeps every day it moves out a day. And so the top coverage price available was 159.84. Again, I said, let's consider a 155 planning price, but we could have locked in 159.84 would have cost us $3.83. I like to say that since this is insurance, we don't have to buy the highest coverage level. Important that you compute your break even price and Brian's going to visit with you about that. We just did a budget today and you know, with some $5.50 a bushel corn and and 165 feeder cattle going in and my break even price on that came out to be about 149. And so, you know, if we just want to cover our break even you're going to need to work with your lender about this to lenders are very conducive. They're using LRP because everything is known up front. So go on down there to second from the bottom you could lock in 149.84 still 84 cents above your 149 break even and you can lower your premium down there to $1.26 and so reduce the premium still have some protection. And again, the futures March futures closed there at 61.40 and you know which is above this so some consider and then LRP is also available for heifers the and if your cattle are coming out in February. There are February contracts could have done a first years the highest is 159.25 at a cost of 342. But you can again go down get lower prices for lower premiums. There's the one I just showed you in for for March 7 also available in April even into May and on through however you want to do it and then going down to the heifers. Heifer offerings are 10% less than steers so we could have been in that 143.144 area again and could go below that if we wanted to for to reduce our premium. So I know that's a quick go through again. Computing your cost and and developing a budget very important and there is risk out there particular with the corn market we saw how volatile the corn market can be and then how volatile the feeder cattle market so you know flexible flexible marketing plans that maybe include some risk management may be something to consider. So with that I'm going to break away here and urge you to if you haven't done so to listen to the other speakers as well and if you do decide to background good luck to you.