grass cattle

[farmers_son]

It seems to me that Kpb is overlooking some things in the calculations of backgrounding calves.

What about income tax? Income tax is figured into the price of fall calves. Even if the backgrounding breaks even the purchaser has saved 30-40% of the purchase price plus expenses in tax that is deferred to next year or maybe avoided altogether. That more than makes up for the risk of owning those calves plus there is always the opportunity to make money backgrounding just like there is a possibly that the investment will not be profitable. Savings in income tax could amount to more than $200 a calf. Add in the $37.50 and backgrounding starts to make real good sense. Of course the tax must be paid next year if you get off of the backgrounding treadmill but that deferred tax can provide much needed cash flow throughout the year. Most farms are cash flowed with deferred tax in one form or another.

For many people backgrounding it is a way to market silage. Often the feeder is making quite good money on the silage and for most there is no other way to market that feed.

It only stands to make sense that if a backgrounding industry exists then it exists for a reason and that reason is that it must be profitable for those doing it.

[smcgrath76]

In a larger overall approach there are a couple of other things to consider as well. Some producers may calve later and thus retain calves longer prior to selling. This can greatly reduce the wintering cost on a cow and the labour cost of calving early. Available feed can be fed to growing calves, rather than cows. Grass cattle can also serve another purpose. Cash flow and drought risk management. Grass calves can be quickly liquidated in the event of a dry period to prevent overgrazing and open pasture up for a cowherd.
It is important to look at options all along the way, including how your operation is set up right back to the breeding and calving season.
Avg returns to AB feedlots over the last 20 years have been roughly 0%. I doubt grass cattle when viewed in isolation are much better than that, but they can be a valuable part of a whole enterprise.

[blackjack]

...our operation raises its own feed and like farmers son says it is our way of using the crop production...when the crow rate ended i would assume quite a few farms took on this route...our family has also been backgrounding for many years...the most money we make is when the grain prices are high...

[grassfarmer]

kpb, your scenario above of making $3750 by backgrounding 100 calves for 75 days doesn't look bad to me. I don't see the need to add a land cost as they are standing in the corrals eating purchased feed. It is a return of $50 a day which I consider reasonable payment for feeding them - say an hour every second day - that's a $100 an hour job! It's not my only job and it's not the only money we make off the calves. Add to that the manurial value of having them on the place which is considerable value in my opinion. This value has the cost of buying straw and spreading manure to set against it certainly.

To use actual figures from last year our 500lb steers weaned October 7th I valued at $662.50 or $1.325 (market average that week was $1.28-$1.37) They didn't gain too great because our silage was a bit too wet but when sold in December averaged $822 or $1.31(market average was $1.18-$1.32)They cost about a $1 a day to feed so we were happy with them. Steers do better than heifers of course and the calves we sell in December tend to do better for us that the ones we sell later.

On this years calves we need to get $1.10 on steers by December to beat the off cow value and we would need $1.23 to equal last years return. I think we will get somewhere in between come December. Time will tell but I think $1.14 to $1.18 might be achievable with good preconditioned calves.

[farmers_son]

smcgrath76:
About the comment Alberta feedlots made 0% profit in the last 20 years...Could you provide a source for that or some more detail.

Looking back, I do see where a lot of smaller finishing feedlots in this area quit to background or just quit altogether and I can think of 2 that went bankrupt. But I can think of many feedlots in a wider area that at least on the outside appear to have made millions.

[grassfarmer]

f_s, one source of that information was Cam Ostercamps original paper behind the veil of Science. He quotes " ....Western Canada feedlots from 1979 - 2002 showing a net loss over that period of $4.85 on a twenty year average." His source was listed as Can Fax Trends.

[cswilson]

Must be alot of dummies in the feeding business then which I find hard to believe-you can take a pencil and make any scenario fail or thrive. About half the people sharpen it and try and find away to keep going and the other half break the pint off -convince themselves they should quit then drive to coffee row to tell their neighbors the good news.

[grassfarmer]

I wouldn't imply that there are a lot of dummies in the feeding sector - an average over 20 years is made up of many severe peaks and troughs so some guys will have done very well at it at times. Are we talking about a historical picture here though? it appears to have changed dramatically since 2002. How many of the big lots are now custom feeding cattle directly for the packers? I assume they get a small but secure margin by doing this and avoid market risk. How many of the other lots are now feeding everything on a custom basis? Again the market risk can be passed on to the owner of the cattle whether it be a primary producer or the dentist in town. It looks to me like this lasting damage of the BSE crisis will make it harder for independant feedlots, backgrounders and cow/calf producers to secure a fair return from the marketplace.

[smcgrath76]

FS - I believe that was from a Canfax report. I have it around here somewhere and will have to dig it out.
Feedlots and $ - nowadays a lot of feeder cattle are not owned by the same people that own the feedlot. Also, I think part of the trend relates back to FS comment on tax. Sometimes a $ lost can really be $2 earned.
The other issue is that a lot of feedlots (particularly smaller ones) have disappeared over the time frame of the study. Were they profitable? I guess only those running the lots will ever know.
Another factor is that feedlots are operating in a nearly perfectly compeitive industry (as far as competing against other feedlots is concerned - processors are a slightly different story). This produces slim margins by definition.

[cowman]

Before BSE a lot of farmer/feeders were caught in the old tax game... big losses let a lot of them get out! You know...the guy who bought 200-500 head every year so he didn't get screwed on income taxes?
Now without a doubt there are still some there but a lot of them walked? Sure doesn't help the fall calf market though? Who buys your calves now?
Heres how it worked: First year in. You borrowed the money from the feeders association. You bought $200K worth of calves. You wrote it off against that big Canola check and voila...you never paid no taxes! In Jan/Feb you sold those calves(at a loss or profit, doesn't matter)and paid off the loan. Next November, you start to get antsy because you have a BIG tax bill coming...so you pile in again to avoid paying the tax?
On and on it goes, year after year, with no end in site?
Then along comes BSE and you lose so much you can get off the treadmill! Goodbye to a lot of guys who made this fall calf thing work! A sad day for the cow/calf guy?