Using benchmarks in your business

Over the last few months I’ve been considering the role of benchmarks in business. I’ve always thought that benchmarks are important.  However the question really is, why are benchmarks important?

The original use of the term benchmark related to marks stone masons would chisel into stone so that leveling rods could be placed onto the stone bench.  The mark allowed the masons to return accurately each time the rod needed to be reused.

In business I think we use the term in slightly different ways.  Ideally a benchmark is about setting a mark, or a measure on the factors that determine your production and profitability.  They should be measures that can be repeated each year so that you can determine if your business is meeting your own goals.

Unfortunately I reckon too many people see benchmarking as a form of competition!   I not sure where that impression came from.  I guess some people are naturally competitive and try to be the best at everything.  

Many producers work in groups to share their benchmarks and to learn from each other, so perhaps there are some people who just like to compete on everything!

So when I am asked about benchmarks, my first point is that it isn’t a competition with anyone! 

My second point is that benchmarks should be yours. By that I mean, you need to set the marks in place that let you come back and assess your progress each year.  They have to be realistic and reflect your business model.  There’s no point trying to compare what you are doing to anyone else in the first instance.  So if you are operating a breeding business, your benchmarks should focus on those areas around fertility.  You should know:

• Your pregnancy rate for heifers, first calf heifers and cows.

• Calving spread over your calving period

• Weaning weights and numbers

There are more measures that you could record.  However these will at the very least let you determine if your herd is operating efficiently. 

If you are operating a finishing program can you record growth rates; compliance with specifications; age or weight at turn off? 

There are quite simply plenty of measures that your business should have.  I talk about this data as being useful to drive innovation.  Quite simply it is using these results to fine-tune your management to improve and achieve better results you’re your business.

Setting some on farm benchmarks gives you a chance to take a critical look at your program.  I know in my own business it’s very easy to get caught up in the cycle that is best described as “busy being busy!”  

Having some set measures in place makes you stop and look at what you are doing.  The chance to stop and look is critical.  You really need to look at how you are spending your time, effort and money?  If its not working as well as it should – i.e you are not hitting your benchmarks, then you can take control to correct the issues. 

I reckon the third and most significant reason for using benchmarks is to give you a focal point to stop and take a critical look at the business.  It’s difficult to argue with hard data.  The data you collect gives you the information to reflect and ask critical questions. 

This brings me back to my earlier points.  In my mind, asking critical questions and looking at your progress each year, is fundamental to operating a successful beef business.  Should you try and compare against other people?  Well comparisons can be useful.  They can help you see the potential for improvement or highlight areas of opportunity.  But just making comparisons wont change anything!  It’s nice to know what the national Cost of Production is and where yours relates to that.  But if you don’t use that information to change your own practices, well I reckon you aren’t achieving anything for your business.

Efficient Beef Production

Do you consider yourself an efficient beef producer?  I guess that is a challenging question for a lot of producers.  Having worked with hundreds of producers for almost 25 years, I have to say there is a huge range between producers’ levels of efficiency and profitability. 

I’m also certain that there some people thinking about that question, and wondering what do I mean by efficient?  One of the best definitions of efficiency I’ve come across is “a system achieving maximum productivity with minimum wasted effort or expense”. 

In beef production terms I guess the word efficiency relates to the levels of production achieved compared to how much input goes into the system.  This could be measured against production per cow, kilograms of beef per hectare and the cost to produce one kilogram of beef. 

In early January 2017, Meat & Livestock Australia (MLA) released the Global Benchmarking Results for Beef producers.  Its an excellent report, and has given me lots to think about.  I’ve also seen it reported on in several of the rural media outlets.  Now depending which site you read, this report is both full of good news for Australian beef producers, and at the same time has plenty of bad news.

The good news is that Australian beef production is considered to be an efficient beef producing nation with a low cost of production.  The downside?  Well Australia is seen as having a moderate to low level of calf weaning weight and lower cow herd productivity.  We are also seen as achieving moderate to high weight gains in southern systems and low gains in the northern extensive systems.

I reckon that it’s easy to just take these reports and look only at the good news.  Yes we are an efficient producer of beef.  However take some time to read through the report.  There is a big variation in key indicators of efficiency.  A good example is weaning rates (calves per 100 cows).  In general southern systems record weaning rates of around 90% and northern systems much lower at 50 -80%.

Having said that, not all southern systems are running herds with their weaning rates.  The key measure is calves weaned per 100 cows. I know plenty of herds with much lower rates.  There are herds with weaning rates that range from 78% to 88%.  So somewhere along the line 12 to 22 cows in every hundred are not rearing a calf to weaning.

If that is the case what happened to the calf?  Did the cow conceive?  Did she lose the calf before calving, at calving or somewhere between calving and weaning? Increasing calves born per cow makes a dramatic difference to the overall profitability of any breeding business, so its worth looking at your records to see how well you are doing. 

I was also interested to look at the measure of total live weight produced per cow.  According to the report, the global range is between 100 - 480kgs produced per cow per year.  The Australian systems fall in the middle, with ranges from 210 – 340kg.  How many kilograms produced per cow per year is the result of may factors, from the genetics you use, the maturity pattern of your cows, the nutritional system you provide and the fertility of your herd.

I reckon these reports are incredibly valuable if you are prepared to look beyond the good news headlines!  I’ve just picked two areas that producers can look at in their own systems and decide if they are really as efficient as they could be.

Don’t just accept the blanket statement that Australian beef producers are some of the most efficient in the world.  Spend the time to think about your own system.  If you can push yourself to get maximum return for the efforts you are putting in, you might be surprised how much more productive and profitable your business can be. 

If you don’t know where to start looking, then why not give me a call? I’m happy to have a look at what you’re doing.  I reckon we could come up with a few easy ways for you to become a more efficient beef producer.

Look beyond the hype

The Australian cattle market has certainly offered a lot of excitement in the past six months!  The value of cattle has steadily increased, and so to has the excitement and hype around beef prices.  Without doubt this is one the best periods I've ever heard of for producers looking to sell cattle!  Pretty much every type of animal is finding a ready demand, from restocking animals, to slaughter cattle.

I happened to have a look at the Eastern Young Cattle Indicator - the EYCI ending yesterday the 10th of September 2015.  The EYCI is a 7 day rolling average, that looks at the prices paid for young cattle (vealers, yearling heifers and steers) that are heavier than 200kg with a muscle and fat score of C2 - C3.

The EYCI has reached 584.50 c/cwt.  Thats an incredible figure!  

So its really hard not to be excited and not to be caught in the hype of a strong market, that continues to offer such great returns.

Having said that, there are some lessons worth paying attention to, and I'm encouraging my clients to remember those lessons despite all the hype!

The most important one is to never forget your customer!  Yes there is a demand for cattle, and there is good money on offer!  But, there are some producers who have been disappointed with the returns they have made.  Its important to remember your customer is looking to buy product for a specific purpose.  Thats why they have set specifications for the cattle they want! Its really important to remember that even though the market is strong, there are still discounts for cattle that aren't suitable for a customers needs.  

I reckon some producers are not thinking about this part of marketing cattle as much as they would have done in the past!  So just because the money is good, don't forget you still need to do some homework and send cattle to the right places!

If cattle don't meet a customers needs, then send them somewhere else, or prepare them to meet the customer. That way you won't drop your returns and you will get the rewards you have been working towards!

I've also noticed a recent article by Beef Central looking at the prices for grained cattle custom fed for 100 days.  Its a really good article that looks at custom feeding on a quarterly basis.  

The analysis done by the Beef Central team predicts a loss of $20 / head on custom feeding cattle.  There are various reasons for this outcome, one of the big drivers is the cost of feeding cattle, particularly in grain prices.  

There are a few things I wanted to touch on from this article.  The assumptions used to make this prediction are pretty standard across the industry.  However, the margins on feeding cattle are so slim, as seen in this analysis, that it doesn't take much to take a budget from a positive to a negative.  It could be grain price, it could be purchase price of cattle.  

In my experience the big variables are actually the performance of the cattle themselves!  A lot of producers over hype how good their cattle are! 

Not all cattle perform well in feedlots.  Poor growth, poor health, behavioural issues that make them unsuited to feeding through to lack of yield.  These are all issues that frequently occur in feedlots, and in the case of custom feeding, these issues impact directly on the profit of the activity. 

I reckon its important to do some homework and look into your marketing plans more closely.  Don't get caught up just on the cattle market and the value of the EYCI!  Just because the market is strong, it doesn't mean you can switch off thinking about ways to do things better, or to market your cattle to the most appropriate destination!

Personally I want to see producers receive as much return as possible, and not waste any opportunity to make a strong return.  But if you're going to make that happen, you have to stay switched on and not let the hype and excitement prevent you making the right decisions.

Do your capabilities match your ambitions?

In the last few weeks I have had four conversations with producers who are incredibly enthusiastic about a new plan.  The plans were all different of course, but the enthusiasm was very similar.  I love enthusiasm, and I am incredibly passionate about aiming for a goal.  But!  There are times when I do wonder, if the plan is realistic!

No doubt you have seen business coaches, life, coaches and other people sharing inspirational advice.  Its not uncommon to see them as a motivational quote.  You know the sort of thing, "Dream big" or "The only thing holding you back is yourself". There's nothing wrong with these motivations.  It is vital to aim at goals and work towards them.  

Having said that, dreams don't just happen! In a business, your ambitions are realised through hard work, through focussing on achieving targets, and on ensuring your capabilities meet your ambitions!

One of the discussions I had last week focussed on producing cattle to meet a certain market specification.  The specification was pretty tight for weight and fat.  Underpinning that requirement was the need for the cattle to be certified as PCAS.  The top price on offer was almost $1.00/kg carcase weight above the normal rate.  It was a really attractive option, and if you could produce cattle that met the certification requirements and more importantly hit the specification, the return was going to be significant.

However, there were a few issues.  the most easily resolved was gaining PCAS certification.  It required some paperwork and a bit of homework, but the effort involved was more than offset by the potential market opportunities.

The bigger issue was simply to do with the cattle that the producer owned, and the feeding regime the cattle were on. 

Quite simply the cattle were never going to hit the specification for weight and fat.  Most of them would have been too lean at the weight, and the grid discount for under finished cattle was pretty big.

At the same time the cattle were grazing a feed that was declining in quality, and were not gaining the weight needed to finish in time.  They really needed a supplement to get the best use from the feed, but the options for the producer are limited by the PCAS requirements and the availability of supplements.  

So there were a few things going wrong.  The cattle, the feed and the restrictions of the program meant that the ambition to produce to that market wasn't going to happen easily.  

The discussion I had with the producer was really interesting.  The conversation started with the disappointment that was felt by the producer over the whole process.  They felt they had wasted their time and there was some blame being levelled for that. Blame on themselves for wasting time and more interestingly, for listening to the wrong advice.  The comment was "I should have never listened to them.."  and "they said that.."

I'm not sure who these mysterious advisors are.  I have a sneaking suspicion that advice was given by a range of people, from neighbours, agents, articles in the paper and perhaps a drinking mate in the local pub!  

I have learnt that people listen with half an ear to things, often hearing what they want to hear.  If it is a way to get more money, or in this care to chase a more lucrative market, the listening is often filtered through this filter of "getting more money".

The other conversation that stood out this week was with a producers wanting to complain about a market price at auction for steers sent to a show.  The issue was a poor return and that it wasn't fair to see a low price for these animals after all the hard work that had been done to prepare them.  It was an interesting conversation!  Again, the issue was a bit more complex.  The steers in question were under weight, had little fat cover and weren't really ready for the market.  However the exhibitor had been told, that by preparing them and taking them to the show, the returns at the sale "shouldn't be too bad.."

That advice had come from someone who hadn't actually seen the exhibitors steers, didn't know the weight of the steers or even what they were going to be shown for.  Yet the exhibitor accepted their advice and as result had a disappointing experience as a result!  Again there was a lot of self blame for listening to bad advice and for asking the wrong people for input.

So what do you make of those experiences.  I guess there are a few things.  Firstly, if you are embarking on a new plan or working for an ambition you hold dearly, you need to be realistic about your capabilities.  Can you really achieve that outcome with the resources you currently have to hand?  Do your cattle really suit that market?  Are your pastures really up to that level of production?  Does that certification restrict you too much?

A more deeper question is what are you trying to achieve?  If you want to make more returns and better profits, is there another way, that uses your resources efficiently and effectively?  Can your ambitions and capabilities be more aligned in a different way?

I also have to ask, who are you getting advice from?  If you are getting advice from someone who doesn't know what they are talking about, then really, what do you expect?

Just owning cows isn't always a qualification!  Can your advisor explain the challenges and opportunities for your business. Have they looked at your animals and pastures?  Do they really understand your system?  Do they actually understand the market, or is it just pub talk?  So many people talk a lot of rubbish that they have half heard or over heard in the pub / cafe / saleyards.  

I reckon most people wouldn't make business decisions on gossip.  Equally I don't think you would ask for computer repair advice from a plumber!  So if you are looking for advice to help you match up your capabilities and your ambitions look for someone who actually can come and give you what you need.

Don't be afraid to invest in the right advice.  Part of the disappointment in the conversations I had this week was a level of regret for lost income, lost opportunity, and more importantly for lost time and resources.  Investing in the right advice at the right time would have made a big difference for both of these producers.  I reckon free advice isn't always good advice.  And when you lose money, you will always be further from your ambitions!

Getting paid for the value of your cattle

I'm often asked by producers for my ideas on ways to increase the income they receive for their cattle.  Getting a better return is something most people want from their cattle.  And along with the desire to make a better return, there is always some new idea or marketing strategy that someone wants to do because they have heard it will make them more money!

Sadly I don't think there is one simple scheme, breed or idea that will guarantee you will make more money!  In my experience the way to make money in cattle production is through a combination of work and focus.  And while most people work hard, the focus is often the area that is most lacking.

So what should you be focussing on?  The first thing is your market.  Australian beef markets are well defined.  If you are selling cattle to a feedlot or to an abattoir, both of these destinations can clearly describe what type of cattle they want to buy and they can say how much they are prepared to pay for those cattle.  

Despite these specifications being readily available, many people don't appreciate what a powerful tool they are in helping you make money.

Specifications provide you with target weights and fatness.  This helps you determine suitable growth paths on farm for your animals.  It means you can use your feed reserves and make grazing decisions that will direct your animals to a market end point.  This is the focus that many people need to have but often don't.

Sadly I often see people who put cattle into a market and those animals are overweight or over fat.  This creates a few problems.  Firstly the animals are out of specification, and so will be valued at a discounted level.  So instead of an optimum price per kilogram, it is sometime much lower than the animals deserve.  

Secondly it takes your feed resources, and therefore adds to the cost of producing those animals, to get them to the weight you sold them.  So not only are they worth less per kilogram, but you also wasted feed getting them to that point.  

I reckon a lot of people don't notice they are losing money.  The extra weight, even though it has a lower value, will mask the lower each animal has made.  So that producers often miss the fact their animals didn't receive the optimum price.

Focussing on a market specification, either for feedlots of for processing, helps set realistic work goals.  Decisions about grazing management, feeding programs and other tactical decisions become easier if you are working towards an end point. 

More importantly at a strategic level you can start examining your genetics and your herd.  Are your bulls helping you achieve the correct growth rates and level of fatness required by your target market?  Do you need to be selecting a different type of cow in the breeding herd?  

Are your pastures capable of supporting your growth program?

These are important decisions that can help you target your financial resources more effectively in the long term.  While in the short term you can focus on hitting a market specification that will return you the greatest return.

I recently worked with a client who was aiming for a specification for a feedlot.  The optimum price was for steers that were 400 - 449kg.  Over 450kg the price difference was 5c/kg lower.  Initially this didn't seem to bad, however we started to look at the feed resources we had to use.  The extra cost in this instance to get steers over 450kg, effectively worked out to be the equivalent of a 25c/kg discount!  We started to look at how we were growing those steers, and by aiming for an earlier turn off at the optimum weight we were able to save around $70/hd on the steers that normally would have been in the heavy category.  To wrap this story up in past years about 10 - 15 steers would always have been too heavy, so we saved around $1000 by making a few changes and staying more focused on the plan!

There is no doubt we had to work a little bit harder and change a few management practices.  However I reckon using resources more efficiently, and targeting a specification more closely, has helped realise better returns on farm.  

I reckon working with producers to be more focussed and efficient in their work programs has helped gain a better return for the clients I've worked with.  

How big do your cows need to be?

How big are your cows?  That's a question I ask producers in almost every conversation.  Not because I think bigger is better! Rather knowing the size of cows helps me to develop recommendations from feeding through to stocking rates and options for markets.

How much a cow needs to eat each day is driven by her weight.  Saying this often seems to be quite simple and not at all surprising!  I reckon its so simple, people often don't think about it properly, and more importantly, they don't appreciate how important this simple fact is for cow fertility, beef production and to enterprise profitability.

To show how intake changes, I thought I would refer to the intake chart used in the ProGraze courses.  

I like this table for a few reasons.  The first is that it shows how intake increases as cow weights increase. What it also shows is how much more feed cows require once they start lactating.  In the case of a 500kg cow, she will need an extra 3.8kg of feed each day when she calves.  

I guess 3.8kg may not sound like much, but over 100 cows, thats an extra 380kg/DM a day, or 2,660kg/DM a week.  

If cows don't get that extra feed at lactation, they will lose weight.  In some cases using body reserves for lactation can be an efficient option.  However, if cows are in Fat Score 2 or below, they won't have sufficient body fat to really make up the difference.  As a result their return to oestrus will be delayed - meaning a longer calving interval. And they will produce less milk, meaning you will have lighter and less valuable calves.

The profit driver on any beef enterprise is kilograms of beef produced per hectare.  The key to this in breeding herds is to have a cow produce a live calf every 12 months.  

Based on the intake chart above, we can do some quick comparisons between the requirements of 500 and 600 kg cows (based on a mob of 100 head).

The daily intake for 100hd of 500kg cows would be 690kg/DM.  

This compares to the intake of 100hd of 600kg cows. They would need 840kg/DM a day.

The difference between the two is 150kg/DM.  In practical terms this could mean either you could run around 20 more 500kg cows or more likely you would be probably running a smaller herd of 600kg cows.  Less cows will mean less calves and therefore less profits.  

If you did try to run the same number of larger cows you would have to be prepared to provide supplementary feeds to meet their daily requirements if your pastures were lacking.  Doing this will also erode the profits of the enterprise.  However without feed, your cows will be less fertile and productive.

As with any of these questions, the size of your cows should be balanced against your environment and your markets.  If you have the pastures and the market options for moderate size cows, then you should be using those resources to improve your productivity.  But just remember, bigger cows don't always give you the most flexibility when the season gets touch or your market specifications change.

Its a simple thing, but knowing how much your cows weigh lets you know how much they need to eat and to be productive.  Know this, and you can start to manage your herd to be productive and profitable. 

If you want some advice or to look over your cows, don't hesitate to get in touch. Often a second opinion can make the evaluation process a lot clearer for you.

Hitting the Specs

Beef production should be profitable.  No matter how much we like working with cattle, without making a return no-one can stay in production for long. 

So what drives profit in a beef herd?  Most people think profit is driven by the average price you receive per kilogram of beef produced.  In actual fact, the average price received only accounts for about 20% of the variation in profit for most beef enterprises.  

The big driver of profit is the cost of production for a kilogram of beef.  Cost of Production is driven not just by costs, but by the kilograms of beef produced.  Across Australian beef enterprises, 80% of the average variability in Cost of Production is due to the variation in kilograms of beef produced by the enterprise.  

I reckon the most effective way of improving profit in a beef herd is to look at more efficient methods of producing beef.  There are lots of simple ways to improve a herds production levels without increasing costs.  

Now thats not to say that your shouldn't focus on ways to increase the average price per kilogram you receive.  Whats important is you shouldn't be spending a lot of money chasing a higher price!

I'm constantly surprised at how many producers overlook the importance of hitting market specifications. Its even more surprising when those producers tell me they want to make more money for their cattle.

Specifications define the weight, fat, age, sex or breed of cattle most suitable for a particular market segment.  Cattle which meet these requirements will be paid accordingly.

By hitting the specification you can budget on the price you will receive per kilogram.

However if cattle don't meet the specification, the price received will be lower.  And the further outside the specification the bigger the price drop.

So what does that really mean? Industry figures suggest the cost or the loss from cattle not meeting specification is almost $130m annually!  

At a farm level, around 25- 30% of cattle don't meet specifications.  Putting some value on this is a challenge.  However some work by the CRC for Beef cattle provides some good figures (http://www.agrifood.info/review/2009/Slack-Smith_Griffith_Thompson.pdf).

The estimates from this paper, and other industry studies suggest losses per head can be up to $60.  Over the average sale lot, these losses can mount up and become pretty savage towards the enterprises profits. 

Specifications are not just important for cattle sold to the processor.  Feedlot operators set requirements. Non compliance can result in deductions of up to $0.10/kg.  If you were working on a slim margin to start with, a loss of $0.10/kg can turn a slight profit into a loss!

I reckon the opportunity for producers to make a little more comes down to a few things.  Firstly addressing production.  Secondly, take the time to work out your Cost of Production and then start addressing issues which can improve your profits, like your market compliance rate.  Focussing on these areas might be the most efficient way to increase your profits without having to make huge changes to the way your run your business.

If you do want a hand to look at ways to do this, don't hesitate to get in touch with me.  I'd be surprised if we can't come up with a few new ideas.

Profit in production

Over the last few months, the industry talk has been about the price being offered to producers.  I've been paying a lot of attention to these discussions, particularly as I am passionate about helping producers become more profitable. 

So it was timely today to come across a press release from MLA, http://www.mla.com.au/News-and-resources/Industry-news/Kilos-and-costs#hp=highlight2&article=Cost%20of%20production

Knowing your Cost of Production is the first step for any producer focussed on improving their profitability.  I was interested to note a big variation in the Cost of Production among the producers identified in the MLA article, ranging from $0.79 to $3.92. The average across the group of 72 producers was $1.22

So what does this mean.  I reckon Cost of Production is the first step.  The second step is to work out your average price per kilogram of beef sold.  The difference between your Cost of Production and your average price per kilogram is your profit margin.  

When you know what your profit margin is, then you can start to focus on those enterprise activities which will lead to an improvement on your margin.  

As the Principal of RaynerAg, I've been working with several producers on a few exciting ways to improve their profit margin.  I reckon we will make some big differences in the next year, and I'm excited about the opportunities we have come up with.