Selling cattle - are you looking at the costs as well?

Cattle prices in Australia have reached record levels. One of the most referenced indicators is the Eastern Young Cattle Indicator – or EYCI.  This indicator is used to describe animals on a 7-day rolling average. Based on the reports from 25 major saleyards across Australia it is expressed as cents per kilogram carcase (or dressed) weight (¢/kg cwt).

While the EYCI shows the general trend for young cattle, it is important to remember that there is a fair range of cattle that are assessed to make up this indicator.  Cattle which are assessed as part of the EYCI include vealer and yearling heifers and steers.  These cattle are assessed for average muscle and are within the range of fat scores 2 – 3.  The weight range extends from 200kg up to yearling steers over 400kgs.

The role of the EYCI is to describes the general movements in cattle market prices.  And while it generally closely reflects the physical prices offered for cattle, not all animals fit into the range described by the EYCI.  So, while being closely reflected in physical sale prices, it is sometimes unrealistic to expect the price paid for your cattle will exactly match the reported EYCI value for the date of your sale.

The other area that often cause disappointment for producers at sale time is the issue of selling costs.  While it is accepted there is a cost in selling, it is important to be sure these costs are clear and explained up front to ensure transparency at sale time.

In most cases producers who sell cattle through a licensed saleyard will have series of costs to consider.  In the first instance there is a transport cos to move animals from farm to sale yard.  This is generally charged at a kilometre rate.  Transporters will set their fees depending on the size of the truck and the distance to travel, as well as the number of animals to be moved.  

It is possible to use a transport calculator, developed by NSW DPI to calculate the cost per head once you receive a quote. This can be useful in ensuring your gross margin calculations are as accurate as possible. 

At the sale yards there is a general cost charged per head, based on the use of the yards.  These range anywhere from $6.70 / head to $10.70 /head depending on location.  In addition, the yard operators (either the private company or the local council) will also include a NLIS scanning fee which ranges from $2.30 to $3.20/hd and possibly a weighing fee which may be around $0.50/hd.  As well as these costs, each animal is charged an MLA transaction levy of $5.00 for use in marketing and research for the industry.

The other cost is the commission charged by the livestock agent to market the animals (generally by open cry auction) and ensure the transaction is carried out and the purchaser pays for the animals.  Agents operate on a commission paid on the sale price of the lot – before the fees are deducted.  Commission is charged anywhere from 3.5% to 5.5%

“ it is important to be sure these costs are clear and explained up front to ensure transparency at sale time.”

The combination of the fixed selling costs (yard fees, transaction levy and scanning fees) along with the variable fees associated with transport and commission can often be a surprise to producers.  

One strong suggestion is to conduct a gross margin analysis using a template such as that provided by NSW DPI.  This can allow a producer to factor in the costs of sale and use a series of support and lower price thresholds to determine the actual return to the business. 

Weighing & scanning are often fixed fees

Some questions that are worth considering include sale method.  While local saleyards do offer a degree of competition, demand is often determined by buyer attendance.  The ACCC investigation into the cattle market identified that competition for cattle purchase typically takes place within 400km of the point of sale.  This could mean that competition for cattle will depend on what processors, feedlotters or other purchasers are likely to exist in this radius and attend the sale. 

How animals are marketed in advance of a sale is also important to determine demand.  It is worth asking the agents who you could engage how they will market, advertise, and generally build interest and demand for cattle ahead of the sale.

Sale methods don’t have to rely on physical sale yards.  Auctions Plus is the major online platform for cattle and sheep sales.  The opportunity with Auctions Plus lies in the cattle being sold on farm, and the purchasers will pay the cost of transport and will be responsible for the scanning and transfer of the animals on the NLIS data base.  

As a seller the costs are in listing fee - $7.00hd, the transaction levy and the agent commission.  The agent commission should include the pre-sale assessment and listing as well as being on hand for the delivery of the cattle to the new owner. Often this online listing increases the radius for potential buyers and increases demand. 

Ask your agent how they will market and promote your cattle ahead of the sale

However online listing also lends itself to more pre-sale marketing – especially if the agent chosen to undertake the sale is engaged in finding new buyers.  It also allows vendors to set a realistic sae price.  This may not be exactly to the same height as the EYCI currently is but can be a realistic one that reflects the cattle being sold. 

The new LivestockBI platform can give you and your agent confidence in setting a realistic price

Auctions Plus have introduced a new platform to help agents and their clients set realistic reserve prices.  LivestockBi considers the description of the animals, their property location and calculates a recommended sale price.  This is based on similar types of cattle and location as well as showing the high and low process offered in the recent past for those animals. If you work with your agent to use this information, you can set a realistic sale price and ensure that your variable costs as well as those fixed costs are managed and don’t surprise you when the sale is done.

What should I consider before restocking after the drought or the fire

The last few weeks have seen a dramatic turn around in many parts of NSW and Qld.  It’s been very exciting to get phone calls from clients telling me they have full dams, and green paddocks again.  Of course the drought isn’t over for many people in the western and southern areas yet. And its also important to remember a lot of the recent rain has been storm rain and so its been a bit patchy.

Nonetheless there are quite a few people now starting to talk about restocking and getting business going again.  If you are thinking along these lines, I thought it would be worth taking the time to cover some key points before you become too committed.

1.     Pastures  

No doubt the green paddocks do look impressive.  I have even seen some offers of agistment already.  However, you need to make some objective assessments of what is really growing.  What species have recovered from the drought (or fire).  How well established are they?  

At the very least you need to do some monitoring or herbage mass and growth rates.  How much do you really have now in kilograms of dry matter / ha (kg / DM / Ha)

How much pasture do you really have in Kg / DM /Ha?

I’d also encourage you to think how fast is it growing?  Sub soil moisture takes some time to replenish and its possible the plants you have don’t have roots that go deep or are using the topsoil layer and the moisture from falls recently.  For your pastures to do well they need moisture and nutrition.  These could still be lacking in some areas.

Lastly, do a fodder budget.  How much feed is growing now?  How much do you have?  How long will it last?  

Source: Evergraze

Consider your pasture growth curve and manage stock numbers to pasture growth

Remember some areas will soon enter the traditional winter feed gap.  Plants will slow their growth and this really means that what you grow in the next four weeks is likely to have to last until Spring.  So that needs t be assessed and entered into your calculations for stock numbers.

2.     Weeds  

I wrote previously about the impact of weeds and the risks with poisoning and animal health.  You need to check that not all the green you see are due to weeds or less desirable species.  Weeds need to be controlled and removed not only for your animals, but to give your pastures the opportunity to grow. 

“Weeds need to be controlled for both your animal health and for your pasture to thrive”

It’s important not to be complacent with weeds.  Don’t assume that weeds will be restricted to areas you fed in.  The dust storms will have spread weeds, as will birds and feral animals that snuck in to eat rations you provided.  Weed seeds will have spread further than you think, so keep looking for their emergence.

 3.     Purchasing Livestock – Do the numbers!!  

The last few weeks have seen the market rapidly spike with the demand for stock as people try to get animals into programs.  Before you start to purchase stock I cannot stress enough the importance of doing some correct economic calculations!  The best way to do this is to use an enterprise gross margin.  

Gross margins are great in allowing you to do comparisons between enterprises.  The gross margin looks only at the variable costs associated with an enterprise.  For livestock you can compare on a per hectare or per DSE to see which enterprise gives the best return.

Use a Gross Margin to determine a realistic budget

I recommend using a simple template.  One of the best is available from the NSW DPI and is an excel based template that covers livestock (and cropping) enterprises.  The value in such a template is it allows you to check on a series of different assumptions, including various price increases to purchase and to sell stock.

It also includes costs such as health costs; fodder costs transport and sale costs.  The calculation will help you work out a break even price!

4.     Be realistic about growth of trading stock

Making money in trading stock depends on growth of animals in the period of time they are in your ownership.  Its important to do the sums based on realistic levels of growth.  This will depend on what pasture you have; how long your growing season is and ow much weight you need to put on.  

How much weight do you want to gain in the time period you have nominated?

For example if your budget is calculated at putting on 150kg from purchase to sale, then what daily growth rate does that require?  Not every pasture, particularly those entering a winter feed gap will sustain high growth rates.  Does that mean additional costs in fodder?  If it does what do those things do to your gross margin?

5.     Genetics

Restocking is a chance to start with genetics that are better than you previously had.  Good genetics need to be researched.  Think about the type of cattle that suit your environment and your markets.  You don’t necessarily have to go back and do the same thing.

Do the research and look for genetics that suit your environment and your market

 6.     Introducing new animals

When you do purchase new stock, you need to consider the risks (as well as the opportunities)!  New stock can bring issues associated with disease; weeds or the fact they are unfamiliar with your environment and need time to adjust. 

Firstly you need to request an animal health statement so that you can have some reassurance about the new animals health status as well as any treatments they may have had.  This should be kept, along with the appropriate NVD or waybill in your programs LPA records.

Your new animals need some time in quarantine or isolation from your existing stock.  This allows them to exhibit any health issues that may be of concern as well as voiding any weeds or pests they have bought with them.  

I generally recommend that this period is at least three weeks (21 days).  I’d use this time to treat all new arrivals with a broad spectrum drench and a 5 in 1 booster.  Its also a good chance for them to settle and get to know you and tour team.  Spend some time educating them by walking or driving around them.  If you use bikes or horses, these may be things new stock have never seen, so its better to educate them now in a confined paddock than later when they make really spook!

Get your new animals used to your methods

Its also a good chance to educate them to your yards and to your other methods such as feeding from feeders or racks.  

When you d let them int the main program I suggest letting them mingle with a coacher group to show them where the water sources and other paddock features are. 

7.     Update & maintain your records

Don’t forget that as a purchaser of livestock if will be your responsibility to update the NLIS database of the stock you are transferring onto your property. 

There are plenty of producers who forget to do this as they have really only sold stock and purchased bulls from sales where the transfers were done for them. Remember the obligation is on you as the purchaser to make sure the transfer is done.

Your LPA records need to reflect these movements as well. It’s handy to quickly be able to refer to where the new stock have come from and when.

Restocking is an exciting part of getting back into business.  It’s something I’m enjoying advising my friends and clients on.  However when you do, take the time to consider these points.  I think a good plan saves a lot of mistakes and avoids some unexpected costs.  Don’t forget if you want a hand, please get in touch.