Profit Tip: Backgrounding Alternatives: Grazing or Feedot?

Darrell R. Mark, Former Extension Livestock Marketing Specialist
Rebecca M. Small, Graduate Research Assistant
Galen E. Erickson, Extension Feedlot Management Specialist

Backgrounding fall-weaned calves is commonly considered by both stocker/backgrounding operators and cow-calf producers wanting to retain ownership of their calves. Two of the primary alternatives for backgrounding calves include grazing either crop residue or grass pasture and placing them in a feedlot or growing lot. As the price of corn and roughages used in feedlot backgrounding situations has increased, producers are likely to focus more on crop residue or grass pasture backgrounding. However, the cost of gain in grazing backgrounding programs has also increased as land prices (i.e., rental rates for crop residue and pasture) have risen dramatically.

Using budgets developed for a wintering backgrounding system to grow 525 lb. steers to 750 lbs. from December 1 to April 30, a cost of gain of $83/cwt is forecasted for this next winter. This assumes grazing corn stalks, valued at $0.16/head/day, and supplementation of 5 lbs/day of wet corn gluten feed (DM basis) valued at $105/ton on an as-is basis (95% of an expected corn price of $5.94/bu). Additionally, it includes variable costs like yardage ($0.20/head/day), veterinary/medical, death loss, and interest on the variable costs, feed costs, and calf. Thus, total winter backgrounding costs are projected to be $67/head.

Putting another 200 lbs. on that same winter backgrounded steer by grazing on summer grass pasture from May 1 to September 15 is projected to be less expensive. Based on a grass rental cost of $29/AUM and variable costs that include interest, death loss, veterinary/medical, and transportation, the cost of gain for backgrounding a 750 lb. steer to 950 lbs. next summer is $64/cwt. The cost of gain for the winter and summer grazing combined averages to $74/cwt.

Cost of gain in the feedlot or growing lot varies widely depending upon the feedstuffs used. For the backgrounding in the feedlot alternative to be better than the grazing alternatives, the cost of gain would have to be less than the projected gains above. So, if the first 225 lbs. could be put on the calves in the feedlot for less than $83/cwt, the feedlot would be optimal choice. Based on forecasted corn prices near $6/bu for the winter backgrounding months, this isn't likely to be the cheaper alternative this year. Assuming that distillers grains, gluten feed, and silage increases proportionally with corn prices, the projected cost of gain for backgrounding the calves in the feedlot is generally around $100/cwt.

One significant difference between the two systems, however, must also be considered. Weight gain generally occurs faster in the feedlot than in the grazing program, so the same calf will reach a given weight sooner in the feedlot. This has implications for marketing and timing sales. For example, adding 225 lbs. in the winter grazing program will take until late April, whereas the same calf would reach approximately 750 lbs. by late February in the feedlot. So, depending upon price changes between February and April, the actual returns to the grazing and feedlot backgrounding systems will differ, despite the relative cost of gain differences.

[September 12th, 2008]

Dr. Darrell Mark, Former Assistant Professor of Agricultural Economics
Dept. of Agricultural Economics, University of Nebraska - Lincoln, Lincoln, NE