Tight supplies and strong demand pushed cattle prices to unprecedented levels in 2025. As we write this in early October, calf prices are running over $1 per lb higher than fall of 2025 and heavy feeders are substantially higher as well. Feed prices have remained relatively low, which continues to impact cost of gain in cattle growing programs. Hay prices are harder to track, but dry conditions in much of the state have impacted hay supplies and values since summer. All these factors will have implications for calves placed into backgrounding programs this fall, and this article will walk through the expected profitability of those programs.

At the time of this writing (October 7, 2025), March 2026 CME© feeder cattle futures were trading around $355 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 $355, and an estimated -$8 basis, an 800 lb feeder steer in Kentucky would be expected to bring around $2776 (800# @ $347 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 -$8 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 October 6, 2025 reported a state average price for 450-500 lb steers of $413 per cwt and a state average price for 500-550 lb steers of $381 per cwt. These values can certainly change as we move through 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 $441 per cwt, or something close to $2203 per head. This is above the state average, but there are groups of 500 lb “value-added” and “fancy” calves moving in that price range. Regardless, individuals are encouraged to apply this process to the type of calves they typically buy and use an appropriate purchase price for their operation. 

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 $30 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 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 $30 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 expected returns to the program described above.

As can be seen in table 1, projected returns are $150 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 $347 per cwt and the projected return is $150 per head.  A $19 per cwt decrease in sale price ($328 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 bodyweight.  A few other costs also increase, such as mineral, transportation and interest.

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 $100 to $200 per head were used to create table 3, which are used to estimate a range of purchase prices.  For 500 lb steers, target purchase prices ranged from $4.31 to $4.51 per lb.  For 600 lb steers, target purchase prices ranged from $3.88 to $4.04 per lb.  In both cases, profit potential is present and looks more attractive than last year.

Here is an example of how this works for a 500 lb steer, targeting a $150 gross profit per head:

               800 lb steer x $3.47 (expected sale price)           $2776

               Total Variable Costs                                             - $423

               Target Profit                                                         - $150

               Target Purchase Cost                                         $2,203

               Target Purchase Price = $2203 / 500 lbs = $4.41 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 $175 gross profit to estimate a $150 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.

Returns to winter backgrounding have the potential to be attractive given the early October calf market, late winter CME© Feeder Cattle Futures market, and the assumptions made in this analysis.  However, winter backgrounders will likely be purchasing the most expensive calves they have ever placed in a program like this. Given the amount of capital at risk, and the impact that sale price will have on returns, winter backgrounders are encouraged to explore opportunities to manage downside price risk through contracting, futures and options, LRP insurance, and other strategies. Figure 1 below depicts March CME© Feeder Cattle Futures from DTN over the last seven months.  Note that the March CME© Feeder Cattle Futures contract was trading under $300 per cwt in late spring and early summer, but has pushed into the $350’s since that time. This serves as a good reminder of how much volatility exists in this market. So, time considering risk management strategies is likely time well spent. Winter backgrounders should meticulously calculate their breakeven purchase prices for calves and be opportunistic as they approach this fall.

Figure 1: March 2026 CME© Feeder Cattle Futures from DTN (close 10/7/25)

Recommended Citation Format:                                                              

Halich, G. & Burdine, K. “Prospects for Winter Backgrounding 2025-2026.” Economics and Policy Update 25:10, Department of Agricultural Economics, University of Kentucky, October 31, 2025.

Author(s) Contact Information:

Greg Halich | greg.halich@uky.edu 

Kenny Burdine | kburdine@uky.edu