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Backgrounding margins can disappear in a hurry

What looks like a healthy profit 
might actually be razor thin

calves in a holding pen
Reading Time: 2 minutes

Add up all the costs when backgrounding, says a farm business management specialist.

“At this time of year the profitability of backgrounding calves also comes into question,” said Ted Nibourg. “Focusing on just the feed costs can give the impression that backgrounding will be economically feasible this fall. While feed costs are a major part of any production system, they are certainly not the only ones.”

For example, consider the costs of taking six-weight steers to eight-weights. Steers in central Alberta averaging 650 pounds have recently sold for an average of $1,710 ($263/cwt) and 850-pound steers for $2,066 ($243/cwt). Assuming the price hold, the profit potential is $356 per head before expenses.

Assuming it takes 20 pounds of feed to generate two pounds of gain per day, feed costs over a 100-day period will be about $200 (six pounds of barley and 14 pounds of hay at an average of 10 cents per pound).

“If feed is the only cost considered, this leaves a healthy profit even with strong hay prices,” said Nibourg. “However, other costs also come into play.”

Yardage at 50 cents per day will total $50 per head; a one per cent death loss adds $17; carrying costs add $23; commissions $22; and trucking, checkoffs and brand inspection another $14.

“Total expenses add up to about $326 leaving a $30 margin,” said Nibourg, adding that margin depends on the price for eight-weight steers staying at $243/cwt.

“Risk management is a cost that is difficult to calculate,” he said. “As of Oct. 15, the Western Livestock Price Insurance Program (WLPIP) for feeders will guarantee a price of only $208/cwt for a premium cost of $54/head, leaving a negative $24/head margin if one chooses to go that route.

“Basically, the WLPIP will only mitigate a price wreck and should not be looked upon as a profit centre in this scenario.”

Knowing your costs is the best way to manage them, said Nibourg.

“There may be ways of reducing or even eliminating some costs to help generate profit or, alternatively, decide not to participate in a money-losing proposition.”

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