Tight cattle supply has largely driven cattle markets in 2024. Markets did see a small pullback in late summer but have actually improved counter-seasonally over the last few weeks. Calf prices are higher than they were this time last year and about $100 per cwt higher than they were in fall of 2022. The same can largely be said of heavy feeder cattle, although the price improvement is a bit less dramatic. Feed prices have continued to decrease, which is impacting the cost of gain in cattle growing programs. Hay prices are harder to generalize as markets can vary greatly from county to county. All of these factors should be taken into consideration when one considers placement of calves into backgrounding programs this fall, and this article will walk through the expected profitability of those programs.

At the time of this writing (October 22, 2024), March 2025 CME© feeder cattle futures were trading around $244 per cwt.  As winter backgrounders consider purchasing calves this fall, these late winter futures prices provide market expectations for feeder cattle sale prices.  With an early spring futures price of $244, and an estimated -$6 basis, an 800 lb feeder steer in Kentucky would be expected to bring around $1904 (800# @ $238 per cwt) in March.  Of course, actual basis is heavily impacted by local market conditions, lot size, cattle quality, location, and numerous other factors.  The -$6 basis discussed previously assumes that cattle are of relatively good quality and are sold in potload-sized groups.

The AMS Kentucky Weekly Livestock Auction Summary for the week ending on October19th reported a state average price for 450-500 lb steers of $284 per cwt and a state average price for 500-550 lb steers of $273 per cwt. This market will continue to evolve as we move through the fall and additional costs could be incurred putting together groups of calves for placement.  For the purposes of the first table, we estimated the purchase price for a 500 lb steer at $280 per cwt, or something close to $1,400 per head.  There is always a large range in calf prices, so individuals are encouraged to apply this process to the type of calves they typically buy.

Cost estimates are also needed for wintering those calves and selling them in the spring.  While we provide an estimate for a specific winter program, costs will vary based on local conditions and the specific backgrounding program.  Feed is the major cost and producers should consider all potential feeding options including commodity feeds, corn, and corn silage.  For this scenario, we will consider a single program where calves are fed 1.5% of their body weight per day of a 3-way blend of corn gluten, soy hulls, and shelled corn and another 1.5% of their body weight per day of grass hay.  While performance will vary, we will assume a rate of gain of 2.5 lbs per day, which would put on 300 lbs in approximately 120 days.

The 3-way blend is valued at $240 per ton and grass hay at $100 per ton. Health costs are assumed to be $30 per head, transportation costs are estimated to be $15 per head, and selling/marketing expenses are set at $25 per head.  An interest charge of 7.0% is included and death loss is assumed to be 2.5% for 500 lb steers and 2.0% for 600 lb steers (discussed later in the article).  These costs will vary by location and operation, so readers are encouraged to come up with their own estimates. 

Several of these cost estimates are worth careful consideration.  For example, we have assumed selling/marketing expenses of roughly $25 per head, which assumes that producers are paying the reduced commission rates associated with large groups.  However, many producers will be selling in smaller groups and likely paying higher commission rates on a per-head basis.  Vet and medicine costs are assumed $30 per head, but they of course will vary considerably depending on the type of calves purchased.  With these caveats in mind, the following table shows the expected returns to the program described above.

Table 1. Winter Backgrounding Budget Estimate, Fall 2024

As can be seen in Table 1, projected returns are $131 per head this winter based on the assumptions discussed previously.  Producers are strongly encouraged to modify these assumptions for their individual programs to better reflect calf values and expected spring basis, as well as cost estimates and feed prices for their area.  It is also worth noting that labor, depreciation, and interest on owned capital are not included in the budget, so the return shown is a return to land, capital, and management.  Producers should ask themselves if that return adequately compensates them for their time, capital investment, management, and risk.

The two key assumptions made in Table 1 include the cost of the calves being placed and the expected sale value in the spring.  Changes in calf placement costs will greatly impact winter backgrounding returns.  For every $5 per cwt decrease in the purchase price of the calves, the return to land, capital, and management increases by $25 per head.  The second assumption, the sale price for the feeder steer won’t be known with certainty until spring.  Note that the assumed spring sale price in the analysis is $238 per cwt and the projected return is $131 per head.  A $16 per cwt decrease in sale price ($221.7 per cwt price) would result in actual returns falling to $0.  While feed price does not have as large an impact on profit as sale price, a $25/ton decrease in the price of the 3-way blend would increase expected profit by $15, and vice versa. 

Table 2 shows a side-by-side comparison of our assumed costs for placement of a 500 lb steer and a 600 lb steer.  The same feeding and gain assumptions are made, but feed costs are higher for the 600 lb steer due to his increased body weight.  A few other costs also increase, such as mineral, transportation and interest.

Table 2. Expected Variable Costs, Fall 2024

Note: Interest and death loss vary slightly by purchase price.

The cost estimates from Table 2 are used to estimate target purchase prices for both 500 and 600 lb steers, given a target gross return, in Table 3.  A range of gross returns from $50 to $150 per head was used to create Table 3, which is used to estimate a range of purchase prices.  For 500 lb steers, target purchase prices ranged from $2.76 to $2.95 per lb.  For 600 lb steers, target purchase prices ranged from $2.54 to $2.70 per lb.  In both cases, a profit potential is present, although expected returns are likely less attractive than last year at this time.

Here is an example of how this works for a 500 lb steer, targeting a $100 gross profit per head:

            800 lb steer x $2.38 (expected sale price)       $1,904
            Total Variable Costs                                          - $375
            Target Profit                                                      - $100
            Target Purchase Cost                                       $1429

            Target Purchase Price = $1429 / 500 lbs = $2.86 per lb

Table 3 can also be used to adjust target purchase prices to your cost structure.  If your costs are $25 per head higher than the assumptions made in this analysis, then you would shift each targeted profit down by one row.  For example, you would use the $125 gross profit to estimate a $100 gross profit if your costs were $25 higher.  An alternative approach would be to spread the additional costs over the purchase weight.  In that way, each $1 increase in costs reduces target purchase price by $0.20 per cwt for a 500 lb steer and $0.17 per cwt for a 600 lb steer.

Table 3. Target Purchase Prices for Various Gross Profits, Fall 2024

Given the assumptions of this analysis, returns to winter backgrounding have the potential to be attractive given the late-October calf market and late winter CME© Feeder Cattle Futures.  However, given the importance of expected sale price on returns, winter backgrounders are encouraged to explore opportunities to manage downside price risk through contracting, futures and options, LRP insurance, and other strategies.  March CME© Feeder Cattle Futures have been very volatile over the last seven months, trading around $260 in late spring and early summer, then dropping down to around $230 in late summer and early fall.  While it has increased up to the mid $240’s, it has been a clear reminder of how volatile the feeder cattle market can be.  Thus, time spent planning risk management strategies is likely time well spent. Winter backgrounders should carefully calculate their breakeven purchase prices for calves and be opportunistic as they approach this fall.

Recommended Citation Format:

Halich, G. and K. Burdine. "Prospects for Winter Backgrounding 2024-2025." Economic and Policy Update (24):10, Department of Agricultural Economics, University of Kentucky, October 31, 2024.  

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Author(s) Contact Information: 

Greg Halich | greg.halich@uky.edu 

Kenny Burdine | kburdine@uky.edu