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.