grass cattle

[kpb]

In a recent post grassfarmer mentioned the benefits of retaining calves through backgrounding and onto the grass. I think the guys who wean into the auction mart in the fall were referred to as "dump and go merchants" and it was implied that they were basically ignorant blokes who did not maximize their profits by retaining ownership.

I've been calving, backgrounding and grassing for quite some time now and I don't think it is all that easy to make money on the latter two processes--in fact I think it's quite often the case that weaning into the auction mart is the most profitable way to go. Now 2005 was the best year we've had on this ranch, mainly because the grass cattle were cheap in the spring with BSE still plaguing us and the 8's were pricey in the fall with the border open. So it was a good year to retain ownership.

But look at this year.

As I said last spring I was scared of buying grass calves because I thought they were way too expensive. I told lots of guys on this forum to stay away from grass cattle. But the 8's were high in the spring too so I went against my own advice and bought just over 100 calves. Usually I buy around 500 but I just couldn't bring myself to do it. Still I was greedy enough to at least stay in the market in case I was wrong and prices stayed high.

I bought 60 steers, average price $133.53 with an average weight of 562 pounds and 57 steers, average price of $131.21 and average weight of 556 pounds. These were common steers, not fancy but ok and the prices I paid were actually on the low side of what was being offered last spring. After processing and transportation, I was all-in on the first group for $778.26 and all-in for the second group for $766.87.

High, yes, but like someone said on another post, the 8's were trading at the time for at least $1.10 so I could see making around $100 per head if everything stayed level. Now that's not a ton of dough (not like 2005) but it's ok and would pay a few bills.

So this week I sold 100 of them and here's where reality intrudes on working things out on paper, which is what I was trying to say to grassfarmer on the previous post. First of all, the 100 calves came in at an actual auction mart weight of 772 pounds which is not too bad after shrink. It gave me an average weight gain of over 200 pounds after shrink.

Sixty-five steers came in at $103.20 but a few of the losers dragged the average price down to just under a buck a pound at .993. You never figure on the losers when you're working on paper but, believe me, there are losers in every load and the buyers don't miss them.

The average dollar per head was $766.14 and that was before the usual bogus deductions ($324 to ABP, $1,890 to the auction market, etc,etc). I've still got a few of the boogers running around in the bush, obviously, but they will just be the same when we get them in and sold.

So I've taken these calves from the spring, grassed them all summer, put on, say, 240 or more pounds before shrink, and lost a little bit of money on them. Before land and labour costs or fencing or drugs and anything else you can think of.

Shouldn't have bought any, I guess. But glad I didnt buy 500 like usual. And before anyone jumps up and says yeah, but they background and grass their own calves so they don't consider the market price in the spring relevant, consider this. These calves were bought cheap in the spring, lots went through for lots more money. You could have sold your homegrown calves in the spring, put the money away, taken hay off the grass or let it just sit there and be further ahead than me.

You are only fooling yourself if you do not consider the market value of your calves every step of the way. If they can be sold for a profit along the way--and that especially includes right off the cow--than you should do it. Because when you don't you are taking on a future market risk that is hard to define. And my experience has been, over the years, that selling right off the cow is often, all-in, the most profitable way to go.

kpb

[Horse]

Was at westlock today and 600# strs from 100 /106 thats about 30cents below what they were about 1 mounth ago and the buyers were real picky ,and the worst is they tell me it is going to get worse?
#300 was around 1.25 a little more on the very good ones.
From talking to some of the producers without a good job it sounds like they are done as they will get $150/200$ less than last yr and withj imput costs where they were this spring it just dont work.

[grassfarmer]

Now kpb, I think you are misunderstanding me and the comments I made. The guys that wean direct into the auction may well pencil out better some years, I don't think they are ignorant but it is a horrible system and if the cattle industry is as efficient as it claims to be this is a practice that should die out because of the expense it incurrs. To take a calf fresh off it's mother, haul it into an auction often for a 24 hour stand before selling to then stand again before being hauled with other cattle for several hours and finish up in a feedlot pen with no grass or other recognisable food is a terrible experience. No wonder you get what - 40% sick and needing treated? Totally avoidable if the producer were to prevaccinate, wean and start the calves on feed before shipping.
Some producers that sell cattle by auction weaning are the least involved with the industry - they never think of the alternatives and will sell at any price because that is "their market" they don't consider what will happen to the calves once they leave the farm or what kind of beef they will ultimately produce.
I don't personally grass feeders and wouldn't be tempted to - I only keep steers to fatten off grass the next fall for direct marketing. This is our smallest but most profitable enterprise. The calves we wean for selling through the auction fall into two groups - I target roughly my top 60% for sale into the (hopefully higher priced) tax money induced peak pre Christmas trade. It has worked well for me selling calves that have been weaned for 8 weeks and are fully vaccinated because the buyers want them like that and know they will go straight onto feed and not cause problems. I usually retain the smaller 40% through until Feb-March and try to find a little market peak in there too. You might call it micro-management but I carefully select the calves for retaining to March - I find we get excellent compensatory gain on some calves that maybe didn't get so well reared on their mothers either by being late born or poorly milked for.

Although I calf later we wean early to get the cows fattened up before winter so when I wean 5th October this year I allocate an off cow value to the calves based on their weights and using the market averages that week. I calculate the backgrounding phase as a seperate profit centre based on feed consumed, gain achieved and sale price.
We formulate rations for just under 2lb a day gain and can do that for under $1 a day in a year like this. Fifty cent/lb gain will make you money just now. This type of backgrounding has worked well for me, taking 5 weight calves through to 6-7 weights. Sure it's a little work but I need something to get me out for a little excercise and it also provides me with another chance to convert some bought in forage into fertility to enhance my land. That's how I do things, not saying it's right it's just what works for me as I get established here.

[kpb]

grassfarmer, you know I respect your opinion but I must tell you as someone who has backgrounded thousands of calves, you are backgrounding your calves to earn almost nothing.

The price spread between 5's and 6 to 7 weights usually averages 8 cents to 10 cents. This year is right on the average so if you sell your 650 pound steers for, say, $1.05 which is at the middle to high end right now (check TEAM sales today) and consider that your 500 pound animals today are worth $114, you have a gross return of $682.50 minus $570 or $112.50.

You say it costs you .50 per pound to grow these animals. In my experience that is an excellent cost and just about as low as I've ever been able to go on backgrounding. Still, to add 150 pounds will cost you $75. So your net, which I assume does not take into account labour, land expenses, etc. is $37.50 per animal.

Now if you are backgrounding 100 steers, that's a net return, before labour, land, etc. of $3,750. Well, I guess you can pay your land taxes with that but not really much else. So let's go bigger, say 500 calves which gives you a net of $18,750. Better but still not much.

And the rub is that this only works if everything stays the same. If you've got 500 steers on backgrounding rations and the market in 75 days is .95 for your animals, you are royally screwed. Because then you will gross $45 per head and have a net negative return of -$30 per head or a total haircut of -$15,000.

Sure, maybe the price will be higher in 75 days but I guess my point in the first post is that the risk-reward ratio is not good now and is never really good. Yeah, you can make your $3,750 but is that really worth the risk of keeping these critters? And if you want to increase your gross return, well then you'll need more animals, hence more risk.

I know this is just one aspect of your operation but, geez, does it make sense to you in any sort of prudent business sense? It's just ok when it works and bloody horrible when it doesn't. I like feeding calves too and I can surely use the exercise, lol, but the risk-reward ratio is not good.

kpb

[kato]

We used to keep our own calves up until about 900 pounds, but doing the math the past two years that amounted to spinning our wheels. When we worked back the costs and returns, we'd have been just as far ahead to sell off the cow.

Last fall we sold a few 'cash flow' calves, and they turned out to have made more money, so this year we did it again, only more aggressively. Basically anything over 600 pounds was gone. The ones that went in September were spectacular, and the ones that went last week weren't as good, but we think we'll look back on those ones and be glad they sold. I think a $650.00 dollar heifer calf will look like a good deal in hindsight.

We buy our grain, so we're concentrating on feed efficiency as a way to increase profit. Rather than feed our own from 600 to 900 pounds, we'll cash them in and replace them with 300 pounders. You can get the same gain per day on a lot less feed, and can make better use of hay on the little guys. Besides, when the market gets goofy you have more time to work with on a calf that's so far from finished!

It's best use of feed that will make the difference with the grain market the way it is right now.

As for the pre-conditioning, we'd love to buy them that way, and we do try and sell them that way, but in Manitoba at least it doesn't seem like anyone's getting paid for their work. We saw some calves go through the auction last week that had been weaned since September, vaccinated and age verified, and they didn't bring one extra cent. The guy did everything perfectly and got nothing for his trouble.

The last time we took age verified calves to a sale, they didn't mention it as they went through the ring, and the ones that we've seen since then haven't gotten any premium at all. I've age verified ours, but I wonder why I bothered.

[kato]

Oh yea, the calves we've sold up to now have received no extra feed other than the corn they are grazing with their mamas. We'll wean them this weekend and leave the cows in the corn. The calves will get screening pellets and hay.

In January the rest will start to hit the road.

[cowman]

I agree that keeping them over is usually at best a very slim margin. And yet I do it year after year...what can I say! Doubt I've sold a heifer calf off the cow for close to twenty years!
Now I'm not too keen in putting much money in those calves in winter feeding? Some hay and decent straw and wean them late, now that we calve later. Usually there is a good spring grasser market and they sure don't want overfed calves? When those "lean and mean" calves hit the grass they can really pack it on!
I don't think we did all that great on our grassers this year even though we sold them before the market turned ugly and they had some good gains. As KPB said 2005 was definitely a money maker?...a very good moneymaker!
Right now heres how I see it: Calves are very cheap, hay is very cheap, hopefully the border situation will finally be resolved for OTM beef? This will pick up our whole market? Again hopefully there will be better supplies of feed grains worldwide by next fall? I suspect with the improved feed grain prices this fall and cheap fertilizer prices all the farmers will be going for maximum production?
All in all I suspect there could be a buck made by keeping calves over this winter and throwing them out on grass next spring?...well I keep hoping so anyway!

[whiteface]

I've missed you, kpb. Thank you for your insightful money sense posts! Have a good day all!

[cswilson]

Actually most of the successful ranchers in our country are involved in just about every stage of the cattle business-they sell some calves-maybe background a few-grass others ad some even finish cattle. What I'm getting at is if one stage of of the business is losing usually another one is gaining.Buying calves is a crapshoot-I don't care how good Draxxin works. As for selling calves-I'm not brave enough to base my years work on whether it's a blizzard on sale day or if the wrong buyer takes a leak when my calves hit the ring. When running gras cattle I think you'd better be prepared to own them a bit longer if need be-the bred heifer deal has been pretty good to us over the years too.How crazy am I though just working on gathering up another 100 cows.

[cowman]

Cswilson: I think what you are basically saying is you need to take a chance once in awhile?
Seldom have I gone wrong keeping them longer...probably never made a lot of money...but never lost a lot? Grass often works if you have more grass than you can use! Better a few bucks than nothing!
You might be crazy(buying cows)...or you might be the next genius...time will tell?
Call me crazy too, but I suspect you might just do alright! Cheap feed, cows bought right, hopefully a resolution to the border garbage, and you just might do very well? Actually I would say a fairly good gamble.

[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.