Benchmark your business – the first step towards making a profit
Kieran Mailey, Beef & Sheep Development Advisor, CAFRE
As the winter feeding period gets underway, many farmers will reflect on how well livestock performed in a “good grass year”. However, the questions every beef and sheep farmer should be asking are:
- How much it cost to produce 1kg of liveweight/carcase on their farm?
- How much does it cost to keep a cow/ewe?
- What price do I need when selling to leave a margin?
Having your farm benchmarked through CAFRE provides your business with a full breakdown of all costs that are incurred in livestock production. It is a totally confidential service and easy to complete – more importantly, it is FREE! Benchmarking will compare your costs with other similar farms and allow you to make changes to the business based on facts.
For example, the difference in production cost between suckler – beef farmers in the top 25 percent and the bottom 25 percent was £1.38/kg carcase weight. This difference is based on inefficient production from fewer calves born, fewer cattle being marketed and lighter carcases sold with very little difference in the beef price received.
Once you know how much it costs to produce beef or lamb, you will then know if the business is profitable. If it is making a loss, the business can be altered to try and increase output and reduce costs. At present many beef farmers are housing cattle with the intention of finishing the stock in the spring. Therefore, it is important to know what it costs to feed the animal every day it is in the house in relation to beef price, to see if it is viable to continue.
Benchmarking will also allow you to work out your ration cost and what beef price is then required to leave a margin. Other information that can be obtained from benchmarking includes:
- Output/ animal – this provides an indication of the number of cattle/lambs sold, the total liveweight sold, number of births and the sale price received. In most cases the higher the output, the better the Gross Margin.
- Variable costs – relate to inputs such as fertiliser, reseeding, meal bills and veterinary costs. These costs vary with the size of the business i.e. as stock numbers increase, the variable costs increase.
- Fixed costs – relate to the general overheads that every farm has regardless of the size of the business e.g. electricity, insurance, building repairs. Fixed costs also include the running costs of machinery and more importantly, machinery depreciation, which is often a major cost on farms.
- Net profit – basically, what the bottom line is in terms of costs for the farm business. It will provide a cost for keeping stock and producing beef and lamb and whether the farm can hold on to the SFP, or how much of the SFP is used to subsidise production.
For suckler to weanling/store producers and indeed, lamb producers, now is an ideal time to benchmark your farm as most, if not all, of the stock may be sold. Benchmarking will provide you with the necessary information so that you can plan ahead for next year to help make improvements in your farm business.
How much longer can you continue to operate without knowing your production costs when you consider current beef prices along with the continued rise in fertiliser, fuel and feed costs and the future implications for SFP?
For more information on benchmarking, contact Paul McHenry at Greenmount Campus, or your locally based CAFRE Beef and Sheep Development Adviser.
Patrick and Gerard Monan, Portaferry, discuss their benchmarking figures for the suckler herd with Beef and sheep advisor, Kieran Mailey.
