How do you prioritise risk?

Its vey common to hear how much risk there is in agriculture.  I know I hear the phrase “farming is a risky business” fairly frequently.  To some degree that’s true.  There are risks with the weather and the markets.  There are risks associated with production from diseases and pests.  There are the risks working with machinery, animals and working in isolation. 

However choosing to focus on the negative side of risk is also a risk.  Choosing not to do something, simply as a reaction to a perceived level of risk might actually be the wrong thing to do for your business or for yourself.

Lets face it; risk is part of life! There are risks with everything we do.  The way we manage those risks depends on our experiences, our knowledge of similar or past events.  It includes an appreciation of the situation and a decision to way up the possible outcomes of that response.  So risk management is something we all do!

In day-to-day life making risk management decisions needs to happen in our head, and often quite quickly!  However for a business, making risk management decisions on the fly, often leads to missed opportunities or costly mistakes that time and money to correct.

So how do you look at risk?  How can you plan for risks and develop a business structure that is robust enough to respond to risk and capitalize on opportunities that often come along?

One of the tools I find most useful comes from the work health and safety industry.  Called a risk score calculator, its basically a way to plot the level of risk to an activity or an event.

The tool plots the Likelihood of something occurring.  

There are five levels, from Almost Certain to Rare.  

The way I use these levels is to look at the data I’ve collected on the business.  Has it happened before, is it happening often, does it happen all the time?  In my mind, that’s the whole point of collecting data!

The second step is to decide what are the consequences of an event happening?  Is it Catastrophic – which if you prefer is an easy way to say if this occurs will someone die, or will huge losses occur?  And then through Moderate to insignificant consequences. 

When you determine that level it’s fairly straightforward to decide if the risk you are considering is extreme, high, medium or low. 

Effectively using this tool helps you prioritize your actions and future plans.  Extreme risks are the ones you need to fix straight away.  

Quite simply you need to consider what can you change to lower that risk?  Is it a change to the way you operate?  Is it a physical change to infrastructure?  Does it require you to invest in skills and training?

Setting priorities is a huge part of risk management.  You can’t do everything at once!  And while there are always jobs to do, some of them are probably less important and can wait a while. 

I reckon the real value of using this tool comes from actually sitting down and having a rational and objective assessment of the situation.  As I said previously, your data will help you decide if the situation is likely to occur or not.  The consequences of the event help set its place on your list of priorities.

I’ve recently been working with a producer using this tool to evaluate the impact of weather extremes.  Their farm data shows clearly rainfall is coming in more intense events and the periods between rainfall is growing.  

The pasture data shows changes in growing days as well.  That data shows that it is likely they can no longer rely on certain species of temperate pastures to finish cattle for their traditional market. 

The consequence of that is major impact on the business.  The risk to that business is rated as High.  So we have been working to develop pastures that suit the changes recorded, with more sub tropical species introduced into the mix.  We have also started focusing on alternative markets so that cattle hit the specifications.

These are all big business changes.  But we are making them to respond to a clearly determined level of risk.  More importantly with my clients, we have a set of priorities to focus on.  In sitting down to discuss the ways to respond, we were able to look at opportunities and new directions before choosing the best option for this business.

It also highlights the importance of collecting good data.  I like using data to drive innovation on farm.  Responding to and lowering risk needs some innovative ideas!  If your data can’t help with those decisions, then you really do need to rethink how you are operating.

Over the next month I’m visiting several new clients to look at their programs and offer some advice.  One of my first questions will be how do you manage risk?  You can be sure we will go through this exercise and work up a few priorities! 

Don’t forget if you want a hand to help set your priority list in order or to look over the data you need, I’m always happy to come and ask the questions and get you going!

Profit - is it a numbers game?

“How many cows should I be running?”  “Is a higher stocking rate more profitable than a medium stocking rate?”  Over the last few years, these are questions I’ve been asked on occasion.  Following my recent post on the basics profit drivers, a few people have approached me with similar questions.

These are questions producers have grappled with for a long time.  Where is the benchmark for profitable beef production?  First of all, what does it cost to produce a kilogram of beef in Australia?  The latest figures I’ve seen from ABARES suggest that in Southern Australia, the cost is around $1.74 and in Northern Australia it is $1.75

Looking a little further into the data, it becomes clear that herds with small numbers are much more impacted on by costs associated with production.  In southern Australia, herds with less than 100 head don’t produce enough beef to cover the costs associated with the business.  Herds over 200 head are slightly more marginal.  Often they break even because the business model relies on unpaid family labor!

Moving over 400 head is where the operations seem to start to become less marginal and more profitable.  In northern Australia, the figures seem to be similar, with herds around the 400 – 1600 mark relying on the unpaid labor to get through and over that 1600 mark the systems become more profitable.

There is no doubt that higher numbers have a key influence on profit.  It’s very hard to capture economies of scale with a small operation.  However, its important to look beyond the simple argument that more cows means more profits.  Increasing numbers needs to be considered fairly carefully. 

I have been looking at some work on the relationship between stocking rate and profitability conducted in Queensland.  These have been very interesting to read.  The studies have looked at the relationship between stocking rate and gross margin for growing enterprises and for breeding programs. 

The key findings from the studies include:

• Increasing stocking rate does lead to an increase in production per hectare

• However this increase is offset by lower production per head

• There is a point where increased numbers will not increase production per hectare and may actually reduce production levels

• Lower production levels per animal will lead to price reductions for fat or MSA compliance. These often reduce any increase in gross margin achieved through the higher numbers.

• Increased stocking rates increase the demand for supplements and lengthen the time period of drought feeding

• Breeding herds tend to be less efficient with lower conception rates, lower weaning rates and lighter cull cow weights

From this work it appears that increasing stocking rates to high levels offers only short-term increases in profitability.  In my own experiences with producers who have pushed their stocking rates to high levels, it is a strategy that seems to increase risk to uncomfortable levels. 

By that I mean increasing the risk of seasonal conditions impacting more swiftly and to a greater degree.  Putting pastures under high stocking rates puts more pressure on plants and plant root systems.  Without a corresponding increase in fertilisers or plant nutrition, it doesn’t take long to see pastures become sparser, composition changes and animal performance decreases. 

The change in composition is a significant issue.  I have been working on the restoration of grazing properties in the south of NSW that have had a long history of high stocking rates and insufficient pasture nutrition.  Much of my work now is associated with programs to eliminate invasive weeds and replant desirable pasture species. 

Any increase in income from more animals has long been spent on worm control, supplementary feeds and now weed and pasture work. 

There is no doubt there are times when you need to manipulate stocking rates for specific outcomes.  I’ve recommended it with producers planning to renovate pastures, and we have used high levels to graze pastures right off in preparation for cultivation.  But that has been a short term management strategy.

I think the numbers discussion needs to be treated with some caution, and more importantly some realistic objectives.  I don’t think increasing numbers in the chase for more kilograms of beef per hectare is justified if it sees your animals struggle to meet production targets.

I can’t really justify the drop in conception rates for breeders or the drop in compliance rates for sale animals just to run a few more head.  So if you wanted to increase stocking rate and maintain high animal performance, you’ll most likely need to increase your fertilizer program, or your use of supplements or even both.  If it requires you to spend more to make that little bit more, is it really worth it?

When I am asked about the right number of animals, or what stocking rate to consider, I can’t give a definitive answer! What I can do is to work through the opportunities to use pastures efficiently and in a way that doesn’t compromise the long term viability of pastures, ensures high levels of animal production and doesn’t increase the ability to respond to changing seasonal conditions. 

So when you do look at stocking rate, take the time to look beyond the raw numbers.  If you are pushing stocking rate to the point where your animals are inefficient, or its costing you more in inputs than you are producing, you need to re-evaluate your program.  

Are you focused on the basics or the peripherals of profit?

In the last few weeks I’ve read several articles and discussions focused on beef production.  Specifically I’ve been looking for ideas or thoughts that I can bring into practice with my clients this year.  After all, my job is to work with producers to find better ways and more efficient ways to produce beef and make money.

One of the first articles I came across highlighted the huge difference between profitable beef producers and the majority of the industry.  This article from Beef Central, suggests that only 2 in 10 producers is actually making money.  Having read that, I was more struck by the fact this isn’t really news to me. 

For some years now it has been clear that the large majority of producers are not making nearly enough money to operate a profitable business.  It also seems that there really isn’t anything new in the way that the profitable operators are conducting their business.   In fact the profitable producers are focused on their practices on farm to producer kilograms of red beef efficiently and profitably.

So what is everyone else focusing on?  It seems the focus for the less profitable operators is on the peripheral things.  For some time I have been following an on line breed discussion.  The discussion is driven by participants desire to be more profitable.   However rather than sharing ideas to implement on farm or in the business, the discussion is now around issues that don’t really make money.

These issues include; why does “no one want to buy cattle from our breed?” “why do people overlook us in the sale yard” “we can’t advertise the same way the big breed societies do”. I actually find reading these points a little disheartening. 

It gets worse when the discussion moves towards more defensive positions.  These things include “well we had a good success in the show ring”, “our carcase competition results are always very good” “people say my cattle are great”. 

Its generally about then that I stop reading and go away a bit depressed.  In 24 years of judging carcase competitions, I’ve never actually met anyone who has been paid because of the results of a single animal in a carcase competition.  It seems a very weak argument to put forward when discussing ideas to change and be more profitable. 

Finally in one of the rural newspapers I read an article by an older cattleman who wrote about his work over many years, crossbreeding animals, and his focus on feed efficiency.  While these are both very important traits, I was a bit skeptical when it also suggested processors need to change their specifications to suit cattle producers.  I’m not really sure that any other business would think it’s a valid point to tell the customer to change what they want to suit the producer!

So what does this really mean?  I think it means many people are focusing on peripheral issues that are not the primary driver for business profitability. 

In my books a profitable beef herd is a highly fertile herd.  It must have not only high conception rates, it also needs to achieve those conception rates within a defined joining period.  For many herds this really should be within 6 to 9 weeks. 

Those cows should then be able to actually calve and rear that calve through to weaning.  And then be rejoined in order to produce another calf in a 12 month period. 

Having worked with many producers, across regions this is the crunch point for me.  The producers who achieve these things with their cows are already achieving higher levels of productivity and profitability for their businesses. 

The next key point is animal growth.  Growth isn’t just genetics.  It isn’t just nutrition.  It is the combination of genetic selection.  I think t be more specific, choosing cattle for your country!  Choosing the genetics, the breed type and the animal type that suit the environment you live. 

If you get that bit right you are already on the way to making nutritional management that much easier.   After all if the cattle suit the country, your management should complement the animals ability to use your pastures efficiently.  But if your cattle don’t suit the country because their maturity pattern isn’t quite correct, or for some other reason, you will have to spend more time juggling feed and cow condition to ensure they get into calf, rear that calf and that any progeny meet market specifications.

I know fertility and growth (from both genetics and nutrition) has a direct link to business profitability.  Its pretty clear from lots of industry studies, the herds that produce more kilograms of beef per hectare are the more profitable herds. 

What I don’t really get is if it is so clear, why do we ignore these areas to focus on the peripherals?  I’d get it if a producer was ticking all the boxes in fertility, in growth, in nutritional management.  If the were I would see that they were selecting animals for market specifications and selling tem to capture the value those animals are worth.  In effect, if you tick all the boxes it opens up the peripherals to explore and extract a little more value.

I know some producers will be defensive when they read this.  I’ve heard it in comments such as “my cattle are fertile”  “Its a very fertile breed”.  My response is how do you know?  I know not everyone pregnancy tests.  I know that not everyone selects for females that go into calf early in the joining period.  I know that many cows are joined for longer than 3.5 months. 

So what does it really mean?  This year I’m challenging all of my clients, old and new to look at the basics objectively and honestly.  To make sure we are ticking the boxes.  The peripherals that distract many in the industry won’t play a part in our decisions until we get the boxes ticked.  I’m actually excited by this! I’m confident it will set my clients up to either become part of, or remain well within the profitable sector of the industry. 

Don’t forget if you’d like to step up and take the challenge, I’d love to hear from you! 

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.

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 much does it cost to buy cattle?

There's no doubt the prices for cattle have been a major talking point in the last two months.  The average sale yard price for cattle of all descriptions are significantly higher than the average over the past 36 months.  In some cases records are being broken and many people are struggling to remember if prices have ever been so high.  

With this strong market, I've received a lot of requests from people wanting to buy and sell cattle, as well as people looking to understand the industry a little better, to advise them on what an animal is worth.  

In the case of commercial animals, I rely on the NLRS market reports, that are available online every day.  These are the reports you hear on the ABC Country Hour or read in your weekly rural papers. I reckon these reports are the most useful guide on current market prices, and when we are looking at cattle in a paddock, its the best option to work out a value.

But how do you put a value, or budget on buying new breeding stock such as a new bull or some new cows?

There's lots of people who have an opinion on what a new bull should cost you.  As you can imagine the range in opinions is pretty broad!  I had some comments on the RaynerAg Facebook page on this topic, with suggestions about buying from smaller studs where the price will be lower, through to the importance of recognising the value of long term genetic improvement.

So how do you value the cost of a bull?  

Well there are a few things to consider.  The first thing is you are investing in an animal that will have an influence on three generations of your herd.  So you need to recognise that you are buying an animal that offers value over a long time.  

More importantly, the traits or genetics that bull has, may allow you to produce more kilograms of beef more quickly, or hit your market specifications more efficiently.  These improvements in your herd can earn you more, so spending on genetics might well be justified.

I reckon there are some things to think about when determining your spending limit.  Firstly how many cows will your bull be joined to in his working life?  Unfortunately the average working life of bulls is only around 3.5 years.  Many bulls seem to break down physically after this time.  This means if you want a bull to have a longer working life, you need to focus on structural soundness as much as on genetic potential.  

How many cows will your bull be joined to?  On average most producers join bulls at a rate of 3% to their cow groups.  Some bulls get slightly higher numbers, but this is pretty much a common joining rate in southern Australia (NSW, Vic, SA, Tas and southern WA).  From that we can work out that a bull will probably sire 30 calves a year for 3.5 years.  Which means an average bull may sire about 105 calves in his working life.

According to Beef Central, the average price for a bull across all breeds in 2014 was $4639.  on current market prices, the salvage value of a bull, that is what it is worth at the end of his working life is around $1500.  From this we can work out that the bull is actually worth about $3,139.  From this, you can work out the value of every each calf he sires.   In this example the cost per calf will be $29.89

If that is the cost of an average calf, then why would you spend more?  It now comes back to how much you want to improve your performance.  Not every bull is average!  Some bulls will grow faster, be leaner or fatter at the same stage of growth, some have better temperament and some have more muscle.

Genetic differences are the key to how productive your herd is.  Finding a bull with the genetic potential to move your herd can now be budgeted.  

It might be that if you can produce calves that will grow slightly faster than the average, you could turn your steer progeny off 3 weeks earlier.  This earlier turn off might allow you to capture a higher market return, and the extra value on those steers justifies spending more than the average on a new bull.

I reckon the challenge in determining how much it costs to buy cattle, isn't about the round figure sale price everyone likes to quote.  Instead I reckon its about working out: 

• how much your calves cost you?

• can better genetics help you achieve your target more efficiently?

• is there a financial advantage to be had - either in the paddock or at sale time?

If you can answer those questions then I reckon you can work out the price you can afford to spend on bulls.  And if you don't really know how to start answering those questions, I reckon you should give me a call and I'll help you come up with some results to take you forward.

Profitable beef production

How profitable is beef production?  Its really common to hear people state they are only getting paid at the same levels as they were in the 1970's.  The people making these statements generally compare the average price per kilogram they received in the 1970s with the current average price per kilogram they are receiving.

While it is simple to directly compare these prices, I reckon its not actually a fair comparison or an accurate measurement of the profitability of beef production.

There has been plenty of work done with producers to evaluate the drives of profit in a beef enterprise.  In simple terms, the profit of a beef enterprise is driven largely by the costs of production.  In fact work by Holmes & Sackett identify that 80% of the variation in beef enterprise profitability is due to the variability in cost of production.

So the average price per kilogram received in beef enterprises only accounts for 20% of the variation in profitability.  Cost of production can be really variable.  Costs don't really change a lot between enterprises.  The big variable is the amount of kilograms per hectare an enterprise produces.

The big driver of beef profitability comes back to how many kilograms of beef produced each year.  So I reckon if you want to do a truly fair comparison between the profits of the 1970s and now, you need to be discussing how many kilograms of beef you produce per hectare and look back at how much that has changed.

The opportunities to produce more kilograms of beef per hectare have never been greater for producers.  The past 30 years have seen massive improvements in cattle genetics; pasture varieties; fertiliser choices and a range of other management options.  

I reckon for producers who want to be profitable or want to be more profitable, there are fantastic opportunities. Choosing to believe comparisons based based purely on historical prices won't do anything towards helping drive your profits.  

If you really want to work out how far your industry or your own enterprise has come, then take the time to work out how much your production levels have changed.  If they haven't really changed, then I reckon you need to look at some options to take you forward.

It doesn't mean that the average price per kilogram that you receive isn't important.  There are plenty of options to improve that price.  However I reckon the big wins will always come from focussing on production first, because these wins can often happen through some simple on farm changes.

So in simple terms, I reckon beef production is much more profitable than 30 years ago.  Once you compare the increases in your kilograms of beef per hectare, I'd be surprised if you didn't reckon the same.

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.