Cost price squeeze
Cattle prices are quite buoyant with some industry commentators suggesting high prices will continue for up to two years.
The challenge for producers is that prices are cyclical; reflecting supply, demand and competition in the global market place.
Whether future cattle prices hold, increase or decline is unknown, though it is most likely cattle prices will ease to some degree.
The pressure between costs and income relates to whether producers receive adequate returns to meet variable and fixed costs.
The challenge is to make the most of current good prices to set up for the ongoing ups and downs in the price cycle.
Beef production can be considered a function of inputs (pasture, livestock, water, etc.) used to provide a usable output (livestock suitable for particular elements of the beef supply chain).
Input costs are usually classified as variable or fixed.
A variable cost is if the quantity of the input varies during the production period (drench, fuel, labour costs).
In contrast, a fixed cost is if the input quantity is not varied during the production period (eg. council rates, loan repayments, living costs).
Many have the view that inputs (costs) are always outpacing outputs (prices or value).
More often, however, it is falling prices, that lead to declining incomes for beef producers.
Producers therefore need to strive to find new ways for making their business more efficient, to address the inevitable cost-price squeeze over the longer term.
As a guide, commodity prices for all Australian farm products (such as wool, sugar, beef, wheat, etc.) have been declining at close to 1.5 per cent per year, on average, for the last two decades.
The good news is, there are solutions to manage this challenge. The bad news, however, is that it isn’t easy.
New technologies and solutions must be sought and adopted, to achieve a minimum two per cent improvement each year to keep ahead of declining terms of trade/the cost-price squeeze.
One example of a potential solution to address the cost-price squeeze is through genetic gain.
The rate of genetic gain amongst beef seedstock producers using Breedplan has far exceeded their declining terms of trade.
There are potential gains to be made across all aspects of production, including;
Soils: soil fertility needs to be at levels to support good pasture production
Pastures: pasture improvement incorporating (newer) varieties suited to an area
Herd productivity: all livestock on the farm should be contributing to farm income
Labour efficiency: managing jobs such as weaning, marking, vaccinating to improve efficiency
Technology adoption: individual animal electronic identification to understand individual animal performance and productivity
Marketing: add value to livestock, by producing to market specifications and/or through supplying a guaranteed quality supply chain, to increase prices and income.
In summary, the cost-price squeeze is a constant feature in agriculture, the beef industry being no exception, and there is no indication that it will cease.
To stay ahead of the ‘squeeze’, producers need to lift productivity and/or efficiency by approximately two per cent each year.
Market report for 7th and 8th June 2017 Wednesday Fat Sale 218 head. Thursday Bull and Cow Sale, 15 bulls, 372 cows
A much smaller yarding of 218 head greeted buyers on Wednesday. Some quality veal and steers sold to good demand, lifting both categories. Bullock numbers were back with little to choose from, selling to a top of 291.2. Heifers numbered 11 and a lack of weight forced some buyers out of the action. A couple of pens of stores sold to restockers for a per kilo price of 410.2, This week the yarding averaged 8 cents up at 325.8. 11 heifers made to 294.2, back 23 and averaged 249.5, back 24. 20 steers made to 324.6, up 6 and averaged 300.9, up 15. 181 veal made to 390.2, firm and averaged 341.5, up 4. Bull prices remain strong, with 15 penned this week and the top reaching 314.2, up 5 on last sale. The bull average was up 15 cents to 282.6. 372 cows sold to a top of 297.2, up 21 cents. Although the lack of condition in the dairy section forced the average back 8 cents to 192.7. This Thursday’s yard averaged eased 6 cents to 198.5.
5 CharX J Dyrssen, Neerim Sth 290 387.6 1124 2 Bld K&L Young, Ellinbank 410 368.2 1509 1 Lim J&L Oldham, Neerim Sth 385 365.0 1405 1 LimX L Cowie, Fairbank 360 365.0 1314 1 LimX G&J Budge, Yallourn 430 362.0 1556 1 Bld J Lovison, Newborough 330 355.0 1171
3 Ang Flora Knoll P/L, Ellinbank 432 317.6 1370 1 AngX B&H Saxton, Yarragon 480 295.2 1416 1 AngX Saxton & Waller, Yarragon 485 293.2 1422 Heifers 2 Santa D&C Cropley, Nilma Nth Export Cows and Heifers 1 Ang Jorgensen Holdings, T/buk 495 297.2 1471 4 Ang Flora Knoll P/L, Ellinbank 590 247.6 1460 2 Ang V&M Zappulla, Neerim 545 244.6 1333 1 Ang Wilmarr, Shady Creek 765 240.0 1836 1 Ang H&H Krutsch, Vesper 580 235.2 1364 Dairy Cows 1 R/F W Williamson, Bona Vista 1 S/H D Smith, Pearsondale 3 Frn M&M Briggs, Drouin Bulls 1 M/G 1 Ang F&M Hance, Lang Lang D&A Rigano, Ferndale
Landmark, 3. Scotts, 4. Elders, 5. SEJ. 447 294.2 1315 800 226.0 1808 650 226.0 1469 651 220.0 1432
835 297.2 2481 835 286.2 2389
1. Gibbon, 2.