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Increasing Your Profits From Beef Farming

Monday, October 04, 2010

There are huge differences between farms in the level of profits made from beef farming. This can be seen when comparing the top 1/3 of beef farms to the average and even greater still when the bottom 1/3, says a report from Teagasc, 'Increasing your Profit from Drystock Farming'.

Whether it is suckler farms selling weanlings, suckler farms finishing their progeny, or non-suckling beef farms buying weanlings/stores for finishing, the same message is consistent.

On average, the farms producing the highest amount of beef per hectare are making the highest profits per hectare. Combined with this, a control on the costs that are associated with producing this output is also very important. Variable costs represent approximately 50 per cent of total costs and include feed, fertiliser, veterinary and contractor charges.

Increasing beef output per hectare

On suckler farms there are three areas that affect the level of beef liveweight produced per ha. These are:-

  • Production per suckler cow
  • Performance per head.
  • Stocking rate per ha.

Obviously on non-suckling farms production per cow does not play a part and performance per head and stocking rate are the two variables involved.

1. Production per cow

The more live weanlings produced every 365 days per 100 cows put to the bull the higher the average production per cow. This is affected by:

Cow fertility: The sooner a suckler cow goes back in calf and produces her next calf the more productive she is. A high empty rate and long average calving interval are both signs of poor fertility. Participation in ICBF Herdplus for beef will provide detailed information on calving interval for your herd, show how you compare with the national average, and identify cows with breeding problems.

Bull fertility: It has been estimated that 25 per cent of all stock bulls are sub-fertile and 4 per cent are infertile in any one year. Low fertility in a bull running with a suckler herd can dramatically reduce the productivity of the herd, in the current and subsequent years if it is not discovered soon enough.

Having the bull prepared well in advance of the breeding season is vital and close observation during the breeding period is essential to ensure the bull is functioning properly.

Calving pattern: The more spread out the calving pattern is the lower the average production per cow. Do not leave the bull running with the cows all year. Herds with a compact calving pattern confine the breeding period to no more than 70 days and remove the bull at this stage.

The option with cows not in-calf at this stage is to cull or some can be let slip six months to calve at the start of an autumn herd if they must be kept in the herd. Cows that are consistently poor breeders should be culled.

Mortality: Calf deaths at or shortly after calving can be high on some farms. Pay attention to expected calving difficulty of the bull at purchase to minimise calving problems, monitor cow condition and nutrition from drying off to reduce the risk with the cow. The mortality rate from then until weaning also needs to be kept to a minimum.

2. Performance per herd

The more liveweight put on each growing animal the higher the overall output per hectare. This is affected by:

Liveweight gain at grass: The standard of grassland management on the farm will have an enormous influence on this. Where cattle are grazing a plentiful supply of high quality leafy grass performance will be at the maximum. Where cattle are grazing poor quality swards, due to either low levels of ryegrass or poor management, liveweight gain per day will be very poor.

A long grazing season is essential to maximise performance at grass and early turnout in spring is achieved by planned closing/resting of fields from the previous autumn. Performance in the second half of the grazing season from July is an area where grass quality and weight gain are often poor due to poor grazing management in the early part of the year. Pastures must be grazed tightly up to June to ensure the basis for leafy grass later in the year.

Liveweight gain indoors: The feeding value of the forage fed over the winter will have the biggest affect here. Grass silage of low dry matter digestibility (DMD) or poorly preserved forages will lead to little or no animal gain for close to half the year.

On growing cattle the higher the level of gain required in the indoor period the higher the costs and it may not be economical to attempt to finish animals indoors unless they are at or above their target weight for age – this is especially true for steers or heifers. Cattle going back to grass should achieve the shortest possible indoor period.

Level of meal feeding: The more concentrates or alternative energy sources fed (e.g., beet) the higher the level of output per head. Where there is a return for feeding this extra feed source it makes sense to do it. Where there is not it needs to be questioned.

The duration of the feeding period has a huge impact on the economics of finishing, as feed efficiency reduces over time. This is particularly important for steers and heifers, less critical for young bulls.

Animal health: Healthy cattle that are free of parasites, respiratory diseases etc. put on more beef liveweight per day. Timely use of the correct dosing products is essential to maximise the payback. Do not waste money on dosing when it is not necessary – e.g., a turnout dose for cattle free of parasites is money wasted.

3. Stocking rate

Where production per cow and performance per head are high, maximising the number of animals farmed per hectare should be the next priority. Every farm has a limit on the amount of cattle it can accommodate. This depends on:

Land type: Free draining fertile soils can carry more stock per hectare than wet farms with poor soil fertility;

Grassland management system: Rotational grazing gives greater control over managing grass quality and supply and results in higher utilisation of grass thereby increasing stock carrying capacity and consequently beef output per hectare;

Cattle housing availability and labour availability.

Controlling production costs

In general, the more beef a farm produces, the higher the costs per hectare to produce that beef. Farms with a high beef output per hectare can afford to have higher variable costs per hectare, whereas, farms that have a very low production of beef per hectare find it difficult to justify even their very low costs of production.

The more beef produced per hectare the more the production costs are diluted. A farm with 400 kg of beef liveweight produced per hectare has very high variable costs per hectare at €400 compared with a farm with variable costs of €600 per hectare but an output of 800 kg of beef liveweight per hectare.

Systems with low beef output per hectare must obtain most of their production from grazed grass and must minimise the input of purchased concentrates. High output systems can afford larger concentrate inputs provided the overall cost per kilogram of beef produced is economical.

The aim with variable costs is that they should match the level of production; the target should be close to 75 cents per kg of beef produced.

A farm therefore producing 400 kg of beef per hectare should be aiming for no more than €300 per hectare on feed, fertiliser, vet and contractor charges (this will be extremely difficult to achieve and this type of farm needs to increase its output per hectare to dilute its costs of production). The variable cost limit is €600 or less on the farm producing 800 kg per hectare.

Your own farm’s figures

When looking at your own eProfit Monitor results what are the key areas that you should focus on to ‘benchmark’ yourself against other farms and targets?

(i) Output of beef liveweight per livestock unit (LU)

This is a measure of the amount of beef liveweight that a farm is producing for every LU being farmed. It takes into account both cow productivity and performance per head. On suckler farms it should be at least 300 kg whereas on non-breeding farms it should be over 400 kg. The higher it is, the higher your output of beef liveweight per hectare will be.

(ii) Stocking rate

This is measured in LU per hectare. A stocking rate of less than 1.5 LU per hectare is quite low. The aim should be that it is as high as your farm will allow taking into account land quality, REPS and Nitrates Directive limits. The majority of commercial beef farms, looking to maximise their profits from beef production, should be aiming for a figure of at least 2.0 LU per hectare.

(iii) Output of beef liveweight per hectare.

This is a combination of (i) and (ii). If either is low it will be difficult to achieve a high output per hectare. On suckling farms selling weanlings you should aim for this to be over 700 kg per hectare. Where the progeny are brought through to beef it should be over 800 kg and where all the cattle are bought (no suckler cows) it should be over 900 kg per ha.

(iv) Variable costs per Kg

Variable costs of production should match the level of output of beef produced. Farms with low levels of production should have very low variable costs whereas farms with a high output of beef per hectare can carry significantly higher variable costs per hectare and still have a higher margin per hectare than the low output farms. Look at the costs to produce 1 kg of beef liveweight. The target is 75 cents or less for variable costs.

Fixed costs

The main items in fixed costs include depreciation, machinery running costs, repairs & maintenance, land rental and interest. Motor costs, insurance, hired labour and machinery leases are also included. Generally, any item that can not be directly linked to an enterprise and which varies little with changes in scale of enterprise is termed a fixed cost.

Fixed costs represent approximately 50 per cent of total costs on cattle farms and can have a huge impact on overall profitability level. The stage of development on a particular farm can influence the level of fixed costs – farms with good facilities and adequate machinery in place may have low depreciation and interest costs where the investments were made some years earlier.

Farms with very recent substantial investments will have much higher current costs for depreciation and interest where the new investment was funded with borrowing. A very significant influence on fixed cost level on cattle and sheep farms is the level of single farm payment.

Before decoupling cattle premia (suckler cow premium, special beef premium, slaughter premium and extensification premium) were included as part of output from the cattle enterprise and generally fixed costs consumed approx 30 – 35 per cent of output value – that is farms with a high output level per hectare had much higher fixed costs per hectare than farms with a low output value per hectare.

Since decoupling the old cattle premia are no longer counted as part of the cattle output value and the fixed cost structure inherited from pre-decoupling results in the fixed costs consuming a much higher percentage of the lower cattle output value.

The same principles about reducing variable costs per kg beef output also apply to fixed costs. Achieving the highest physical output of beef produced per hectare is the means of diluting fixed costs per kg of beef. It is essential for farms with low beef output per hectare to have very tight control on both variable and fixed costs.

The absolute level of fixed costs may be more difficult to control but high fixed cost farms can only reduce the cost per kg beef produced by increasing output of beef produced per hectare and/or reducing fixed cost spending level. Profitability from the cattle enterprise will ultimately be determined by the difference between the cost of producing a kg of beef and the market price of the beef.

Efficient farms with a high output of beef per hectare have diluted total costs per kg beef produced and are maximising profitability. At farm level there is little influence on selling price other than improving quality and/or targeting niche markets and/or contract prices.

The target production costs for very efficient operators are approximately €1.50 per kg liveweight with this equally split between variable costs and fixed costs.

October 2010

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