Press Release (for immediate release)
October 22, 2004
Contact: Jerry Tuhy
ND Farm Business Management Instructor
701-456-0002 ext 31
Email : Jerry.Tuhy@sendit.nodak.edu
Backgrounding
Calves - Gross and Net Margins
Dickinson -- How profitable is it to background feeder calves?
Typically a feeder calf to be backgrounded enters a feedlot weighing about 550 lbs., stays there for 120 days and leaves the feedlot at approximately 750 lbs. All this was done for an increase in value of $100 based on the most recent three years of data collected from 275 farms enrolled in the statewide ND Farm Business Management Education Program.
The $100 value increase is the gross margin. Dividing the gross margin by the 200 lbs. gained results in the breakeven cost of $.50 per pound of gain. The actual cost of gaining a pound of beef in this example has to be less than 50 cents before a net margin or real profit is realized.
The actual three year average cost per pound of gain was 46 cents. This converts to a net margin of 4 cents per pound of gain or 200 lbs gained times 4 cents which equals $8 per head of net margin.
Of the total group, the 20 percent most profitable producers had a cost of 36 cents per pound of gain. The net margin of $.14 per pound of gain translated into a profit of $28 per head. These 20 percent most profitable producers made over three times more profit than the average producers.
Another significant factor in feed lot profitability is “rollback”. This can be defined as the difference in the buy-sell margin. During the last three years, the 550 lb. calf was purchased for $9 more per hundred-weight (cwt.) than for which the 750 pound calf was sold. The original 550 pounds was later sold for $49 less than its original cost. This rollback can only be overcome and be made profitable with efficient gains.
Many local feedlot operators agree that working with a $12 per cwt. or greater rollback makes it difficult to maintain profitability.
What will be the rollback during the current feeding cycle? What will it cost per pound of gain in this feeding cycle? What will be the breakeven cost? Will backgrounding be profitable? Many questions remain to be answered, and the answers will vary by area and by producer or feedlot operator.
For more information visit the website at www.ndfarmmanagement.com . Producers can find beef backgrounding and finishing budgets for various weights of calves with various prices, rates of gain and assorted feed costs. A feeder calf budgeting spreadsheet and a gross margin spreadsheet can also be found at the website. The spreadsheets are Excel tm based.
For additional information on the North Dakota Farm Business Management program contact Steve Zimmerman, State Supervisor for Agricultural Education at the State Capitol, at 701-328-3162. The Farm Business Management program is sponsored by the North Dakota State Department of Career and Technical Education.