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Profit - is it a numbers game? By Al Rayner

  • By: "Prime" Ag News
  • Feb 05, 2018

“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.