BETTER farm: analysing 2019 profit monitor data

The overall results, as well as a breakdown by system of the 2019 e-Profit Monitors, are shown in Table 1. The average gross margin for the whole group in 2019 climbed by €100/ha to hit €670/ha – an 18% jump for the year.

Just two farms broke the €1,000/ha mark while a further five crossed €900/ha. Interestingly, steer beef systems were by far the most profitable in 2019, beating the bull beef producers by €200/ha. This is a new one for the BETTER farm programme after bull beef systems historically rose to the top.

The market challenges that bull beef producers have been facing over the last 12 to 18 months have undoubtedly taken their toll. Also, a word of note for the weanling and store sellers; two farms exceeded €600/ha gross margins while changing circumstances on the third farm left its gross margin below €50/ha and pulled the average down.

Productivity

Productivity in 2019 was good, with the average stocking rate coming in at 2.15LU/ha and the average output hitting 841kg of beef (liveweight) per hectare. The target stocking rate for a high-performing suckler-to-beef farm should be 2.2LU/ha, with 2LU/ha a strong target for weanling and store sellers. In terms of output, suckler-to-beef farms should aim to push 850kg/ha of beef (liveweight) out the gate each year, while weanling producers should aim to break the 600kg/ha mark.

But the group also hit these targets in 2018, with average stocking rate at 2.14LU/ha and the average output coincidentally at the exact same figure of 841kg/ha. On top of this – and something that may come as a surprise to most – the sale value of this output didn’t change significantly either. In 2018, total sales amounted to €2,054/ha while in 2019 they came in at €2,065/ha.

So where was the extra €100/ha made up? Most people won’t forget the high costs associated with the very difficult weather conditions of 2018 – a cold, wet spring and a drought stricken summer. While 2019 was a difficult year for beef farming on a number of fronts, the weather certainly wasn’t one of those.

As a result, costs for the year were slashed. Looking back to Table 1, total variable costs in 2019 were €958/ha – a full €163/ha or 15% less than in 2018. Over half of these costs savings came via lower feed bills.

One useful measure when analysing farm cost is to express variable costs as a percentage of output. Low-input weanling/store sellers or steer-beef farms should target 50% to 55%, while high-input bull beef systems will usually run to between 55% and 60%. In 2018, costs ate into a staggering 66% of farm output. In 2019, this percentage is back to 59%.

Breakdown

Tables 2 and 3 give a breakdown of 2019’s e-Profit Monitor results by the farm’s working capacity (full-time or part-time) and by the size of the herd. Full-time farmers achieve higher stocking rates, higher output and a higher gross margin per hectare of land ( Table 2).

Table 3 rings true the theory of economies of scale. Farms with more cows are able to dilute costs better, with a difference of over €200/ha in variable costs between farms with less than 30 cows and over 60 cows with the difference in gross margin more than €500/ha. If this were the case countrywide, and with the trend in suckler farming moving towards the smaller, part-time operator, the challenge is going to be generating enough output and keeping costs at low levels to leave the overall enterprise profitable. The full-time suckler farmer clearly has a role to play in the profitability of suckler farming.

Comment

While the group average climbed by €100/ha for the year, there will be some disappointment around the closing average of €670/ha for phase three of the BETTER farm programme. It’s a long way off the ambitious target of €1,000/ha. The question is, where could the deficit have been made up?

There are two aspects to farm profitability – productivity and costs. As mentioned in the analysis, production for the group was on target overall. Being on target is one thing, but to hit the ambitious targets of €1,000/ha, output must take another step into the elite level. Both farmers who broke the €1,000/ha barrier clocked up outputs in excess of 1,100kg/ha. Furthermore, two farms that had over €900/ha gross margins broke the 1,000kg/ha output-mark. With the group sitting at 841kg for two years running, there is margin for improvement. We can’t be too harsh on the group either. We have already highlighted the effect that a disastrous 2018 had on variable costs that year. However, we can’t underestimate the effect weather conditions have on output – and this can be deceptive as the true effects aren’t felt until the following year. For example, calves lost in spring 2018 will only hit farm output 2019’s accounts. In a similar way, thrive lost during the 2018 summer drought will have impacted carcase weights of animals slaughtered in 2019 too. For that reason, I would suggest that if this group of farmers can maintain their stocking rate, the favourable 2019 should boost output in farms’ 2020 accounts.

On the flip side are costs. Looking at 2019 analysis, there was undoubtedly an improvement. However, as was the case with production, they will need to be cut again to hit the €1,000/ha. The analysis shows a cost-output ratio of 59% in 2019. Again, I go back to the two farmers who crossed €1,000/ha. Their costs only equated to 41% and 47% of their output. All of the high performers held costs below 53% of output. Interestingly, if the group of farms maintained output and continued to cut costs back to a gold standard of 50%, they would be looking at a gross margin of over €800/ha. If they were to increase output by 15% (and sale values stayed the same) the group would be looking at a gross margin in excess of €950/ha. These farms are no longer in the BETTER farm programme but they now have a clear roadmap for their farm and the knowledge to put it into action. For these farms, it’s all to play for.