This is one article where the figures are much more important than the words. Yes, it is that time of year again when we deliberate over the beef price required next spring in order for the gamble of winter finishing to pay off. In the interests of catching those of you that get bored after the first few lines of an article, I am going to get down to business right away.

In order for winter finishers to get a €100 margin over direct production costs, the beef price required next spring ranges from €4.20/kg to €4.80/kg (including all bonuses) depending on finishing system.

Just to be very clear – this is a margin over direct production costs and does not include other real costs such as shed depreciation and maintenance, machinery running costs and bank charges.

As systems vary, I will leave it up to you to calculate this, but you are fooling yourself if you factor in anything less than €50/head.

Therefore, while some will argue that a margin of €100 over direct production costs is excessive, the reality is that it is the very least a winter finisher needs for year-round beef production to be sustainable in Ireland.

Table 1 details the spring beef price required across a range of finishing systems. The price includes the 12c/kg in-spec bonuses on eligible animals. The purchase price for each class of stock is based on current MartWatch figures and I have assumed a ration price of €210/t across all systems with the exception of the 16-month system. Here, the ration price has been increased to €230/t, given the increased demand for protein and potentially high-cost energy ingredients, such as maize meal.

Steers and heifers

I have looked at two finishing systems for both steers and heifers – ad-lib meal feeding plus straw and ad-lib silage plus 5-6kg per day of concentrates. Silage was included in the budgets at a price of €35/t. Just to note, each €5/t shift in silage price changes the beef price required to achieve a margin by 7c/kg.

For steers, the ad-lib meal system is more efficient, with a beef price of €4.49/kg (€4.37/kg excluding 12c/kg in-spec bonus) required to deliver a €100 margin. The higher cost associated with the ad-lib silage plus concentrate system increases the beef price required to €4.63/kg (€4.51/kg excluding in-spec bonus).

Heifers

Worryingly, we have seen a significant shift towards feeding heifers in light of the specification challenges being imposed on bulls. The advice would be to tread carefully. Given the lighter carcase weight at slaughter, it is very hard to extract the full costs out of the system.

As detailed in the table, the price required to deliver a €100 margin next spring ranges from €4.70/kg to €4.72/kg, or a base of €4.58/kg to €4.60/kg assuming carcases are eligible for the in-spec bonus. As expected, the ad-lib silage plus concentrate system is more economic for heifers than the ad-lib concentrate route.

It is worth noting the higher costs associated with the steer and heifer systems compared to the bull beef systems. The figures in Table 1 clearly show the inaccuracies of comparing the Irish steer and heifer price to the EU price, which is predominately made up of bulls slaughtered at 22 months.

Plenty of life in the old bull yet

Earlier in the year we urged farmers to act with caution when it came to castrating bulls. The reason was that the efficiencies associated with the older bull over the steer, particularly during the high-cost winter feeding period, would more than compensate for any reduction in price.

Also, it will be interesting to see if the cuts seen this year remain in place next year when supplies are tighter.

Regardless, as detailed in Table 1, the 22-month bull system remains an attractive proposition relative to feeding steers and heifers. A flat price for R/U grades of €4.25/kg will deliver a margin of €100 per head based on current prices. This is 12c/kg less than the base price required for steers.

It is also interesting to note that at current market prices, the 16-month bull beef system is the most financially attractive system for the specialised finishers that are not looking to put stock to grass.

We are already seeing a number of the specialised units in the northwest recognising this fact. Assuming a strong weanling trade does not push the price of these forward bulls up, then an R/U grade beef price of €4.18/kg will deliver a €100/head margin. I have factored in higher mortality and animal health costs due to the younger age at which animals are coming into the system.

Sensitivities

Table 1 clearly shows the importance of carrying out a budget prior to going to the mart. Along with detailing the beef price required for the range of systems, we also look at the impact of a variation in purchase price, meal price and animal performance on the beef price required.

By far the biggest impact is purchase price. A 10c/kg shift in purchase price equates to an 11c to15c/kg shift in the beef price required – keeping your hand in the ring for too long can therefore prove a very costly exercise.

The impact of animal performance on profitability is often overlooked, despite having almost as big an impact on profitability as purchase price. As shown in Table 1, a 10% decline in performance requires a 9c to 14c/kg increase in beef price to offset the drop in output and increased costs.

Stocking rate, fresh water and feed trough management are all critical factors. With green barley trading at €140/t, it is time that we also put merchants under the spotlight when looking at who is profiteering at the expense of the winter finisher.

Based on current market price, finishers should have access to top-quality rations at €210/t. There is potential for further reductions when buying large quantities in bulk. Each €20/t shift in meal price equates to a 4c to 9c/kg shift in beef price, with the ad-lib meal systems most exposed.

Not a gamble

While I referred to winter finishing earlier as a gamble, there is in fact no reason why it should be a gamble. It is actually the one stage in the beef production chain where performance and costs are fairly predictable throughout.

Take a suckler farmer, for example. The impact of weather, over which he has no control, can affect when cows get to grass, fertility and weanling performance – all factors that ultimately have a major bearing on profitability.

Winter finishing is somewhat different in that before making the decision to fill a shed or feed cattle, you have a fair idea of purchase price, feeds costs and animal performance. The one risk factor is obviously beef price.

However, the risk can be greatly reduced by establishing what beef price you will require next spring to leave you the desired margin.

Unfortunately, in many cases, this is where the gambling starts, with the process of carrying out a budget usually delayed until sheds are full. Perhaps it’s a case of only wanting to know the answer when it’s too late.

The question is will we see the status quo continue? Will the finishers who just six months ago said they would never fill the sheds again appear back around the ring over the next few weeks?

Let’s hope so. Otherwise the impact on farmers producing weanlings and stores will be severe.

However, if the entire industry is to have a viable future, it needs to be on very different terms than in the past. We cannot continue with an industry in which for one farmer to make a profit another farmer has to operate at a loss.

Finishers must sit down and carry out a budget based on their specific costs and typical performance levels achieved. The next step should be to engage with a processor regarding the spring beef price required to give the desired margin. It is this discussion that should make the decision as to whether or not you start feeding for the winter.

Proceeding to carry on as normal without any commitment is what makes winter finishing a gamble. Are you prepared to gamble your Single Farm Payment (SFP) again this year?