Cranking out calves beats backgrounding

Production adviser says operations geared towards low-cost, high-volume calf 
production are better positioned for profits in 2013 than backgrounders

Record-high finishing costs and tight calf supplies mean 2013 will be the “year of the big decision” for ranchers, says production adviser Ray Bittner.

“Are you a calf producer or are you a feedlot?” the Manitoba Agriculture, Food and Rural Initiatives official asked attendees at the recent Beef and Forage days.

Operations that have depended on low-cost gains from backgrounding may find themselves behind the 8-ball this year, while those able to crank out calves cheaply might see the best returns ever.

Rain in the U.S. Corn Belt could be a game changer in 2014, but drought — ironically — may have a limited dampening effect on prices this fall.

“If the corn starts well and the pasture grows well in 2013, those grass calves next year will be on fire,” said Bittner. “But keep in mind you’re buying your way into an industry at the high point.”

To illustrate the impact of high feed costs, Bittner showed some projections derived from a spreadsheet he has developed over the years that balances Chicago Mercantile Exchange futures prices and production costs.

For example, a 600-pound calf today is worth $915. If backgrounded up to 850 pounds until the end of March, it would be worth $1,121.

“That’s $206 margin,” said Bittner. “In the past, that probably was OK money.”

No longer. With alfalfa at five cents a pound delivered and barley at 10.5 cents per pound, the cost of gain averaged out at 80 cents per pound just for feed.

“You’re making $206, but it’s costing you $200. How’s that sound? You still have health and market risk and death loss — anything can happen.”

For grassing calves through the summer, Bittner’s “projection machine” spreadsheet predicted a 975-pound calf would be worth $1,327 if sold in September of 2013.

Again, that may sound good. But arriving at that figure involves a lot of “ifs” based on current CME futures prices, such as corn at $6.80 per bushel and live cattle at $1.36.

“It’s pretty optimistic, but it could happen. That’s the way the numbers are starting to lay out,” said Bittner.

On the other hand, a 550-pound calf currently worth $824, if fed $200 worth of feed to get it to grass and pastured all summer at a cost of $77, should bring $1,164 based on what the futures markets are saying today.

Using his spreadsheet-based crystal ball and December and January futures prices, Bittner figures 600-pound calves next fall will fetch $1,096 for steers, and heifers $1,016.

To get a handle on the cost side of that equation, he used a 2012 cow-calf budget from the MAFRI website that accounts for everything from labour and investment to fixed costs. Using those numbers, he arrived at an all-in production cost of $935 to raise a calf, against his calculator’s projected returns of $1,100.

“So if the market lays out the way it is now, cow-calf is the place to be,” said Bittner, adding that 2011 and 2012 were the only years out of the past 14 in which the provincial cow-calf budget has shown a profit when squared off against actual market prices.

“It’s nice to see that we’re finally above our cost of production.”

With feed costs so high, many ranchers might be tempted to “stretch” their feed supplies and keep “old grannies” in the hope of getting another $1,100 calf out of her. But Bittner advised against that.

“If you underfeed her, she’ll get you back. She’ll give you a dead, weak, or no calf next year,” he said. “There’s no lying to a cow that eats everything you give her.”

Using a total digestible nutrient (TDN) and protein calculator, he compared the costs of various feedstuffs such as barley, corn, alfalfa-grass, second-cut alfalfa, tame and native hay, and dried distillers grains.

The cheapest in terms of energy is a wild hay bale at a cost of $30 each. The next best was alfalfa-grass hay at five cents a pound, followed by second-cut alfalfa at six cents a pound. For protein, barley, oats and corn are the most expensive, and wild hay is more expensive than tame hay.

“Second-cut alfalfa at six cents per pound is the cheapest protein I could find by a fair stretch,” said Bittner, adding that DDGs rate second due to their high concentrations of protein.

Straw is still the cheapest source of feed energy, but its usefulness is limited by digestibility, and overall cost depends on the supplemental feed source chosen.

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