Margins up but long road lies ahead

Having started from a baseline average gross margin of €570/ha at the end of 2016, our 27 BETTER farmers recorded an average of €709/ha in 2017 (Table 1). This represents an increase of 24% and steady progress towards the endpoint target of €1,250/ha in three years’ time. During the same period, beef prices rose by just 1.5% – the vast majority of the improvement is on the back of farm efficiency.

In reality, many of our farmers went slightly backwards this year, investing time and money in extra stock and new infrastructure. Some who are moving from live selling to finishing systems will find things tight as they forego sales for a longer period than usual. While the extra animals in the system are accounted for in the inventory change figure, their valuation is generally low relative to their final sale price. Indeed, big inventory change figures are contributing to significant portions of farm output numbers, but once our farms settle on their planned stock levels next year, these will level out, liquidating more stock and turning more output into actual cash.

Going further

As we have alluded to before, this phase of BETTER farm is going further than gross margin. Cashflow, efficient use of resources, net margins (not including subsidies) and €/hour earned (as a portion of net margin) are also being measured.

Consistent with what we have seen in the past, the live selling systems are lagging behind beef systems on a margin basis (Table 1). Gross margin was just €311/ha across our seven weanling seller farms. Considering average fixed costs in the programme are €615/ha, these farms have some way to go before becoming viable, profitable businesses. A combination of fragmented, heavy farms, modest weanling prices and significant cow maintenance costs are the main contributory factors to the low gross margins here. These farms need to drive output - 485kg/ha is far too low. A profitable beef farm needs to be thinking double this. Our cost-output ratio (variable costs as a portion of gross output) is excessive at 68%. We should be aiming for as close to 50% as possible. More stock, a focus on performance and quality and more grass in the diet will be key.

As expected, bull beef leads the way from a profitability point of view. Net margin per cow was highest on our under 16 month bull farms at €533. It is worth noting that this output per cow figure is simply absolute net margin divided across average suckler cow numbers for the year and that some farms operated trading enterprises which can contribute to this overall net profit figure .The output in our under 16 month bull systems is over twice that of the weanling farms and, although the feed bill is almost four times more, the cost-output ratio is an excellent 49%.

It is no coincidence that a strong link between grass growth in 2017 and profitability/ha is evident. The weanling system, our least profitable, averaged growth of 6.1t DM/ha, while the bull farms hovered around the 10t DM/ha mark.

Our under-16-month bull producers are earning €9 per hour worked before subsidy, compared with a 27-farm average of €2.37.

This low overall figure is driven by a number of farms making a net loss in 2017 as they invest heavily in the business, while relying on credit or off-farm jobs for income. Our top 10 €/hour earner farms are averaging €9.31 pre-subsidy and, while the group includes weanling and store sellers, it is finisher farm-dominated.

I would expect a number of our beef finishing farmers to push towards gross margins over €1,500/ha when fully up and running, and the €/hour figure will approach €20. The labour figures presented here are based on own farmer’s estimation of time spent on their beef enterprises. A more in-depth study of labour on our BETTER beef farms is ongoing, with the first year of labour measurement due for completion during the summer. Dairy farmers will argue that labour should be included in the profit monitor before a net profit is drawn, but considering the average drystock farm is making a net loss, it would be foolish to use this model so early on in the development process. What this does show is just how crucial a well-structured CAP is for the typical Irish holding.

Region

A high concentration of live selling farms coupled with a premature end to the grazing season in 2017 for the west and north region sees them finish bottom of the table on financials (Table 2). Net margin per cow was -€143 here on average, driven by low output and a number of farms making net losses as they invest in improvements. As expected, farms working with more difficult soil profiles performed poorest in the financial stakes (Table 3). Feed bills are higher here as a result of a shorter grazing season.

Farms on free-draining soils fared the best on average, though it’s worth noting that some of the farmers at the top of the financial table are working with heavy or variable soil types too.

Unsurprisingly, our bigger farms are closer to being ‘economies of scale’ and thus achieve better margins than the smaller farms (Table 4) . There are more hectares here to justify and dilute investments. The fact that a bigger portion of these are full-time means there is both more time to spend improving the business and more pressure on the individual to drive the business as other sources of income may be small or non-existent (Table 5).

Costs

As more farmers look to finish their own cattle, the average feed bill on our BETTER farms has risen slightly (Figure 1). However, the early start to the winter on some farms is contributing to this too. The bill for fertiliser and lime has also increased as farmers work on bringing up their soil fertility levels. Expect this to increase again next year as stocking rates increased and more nitrogen is required. With a bigger focus placed on preventative vaccination programmes, vet bills have risen across the board.

What we don’t see within this is a shift from reactive to proactive veterinary receipts.

One lesson learned in previous BETTER phases is that herd health is an area we do not skimp on when driving numbers on a farm. The higher vet bill is absorbed by increased output and animal performance.

The first thing to note with the results of the e-profit monitors here is that they are only from year one of a multi-year programme. Therefore, no farmer is getting too excited at either a good or bad result. As Ciarán outlined in the article, there are many farmers who have had their gross margin increased or decreased as a result of buying various categories of stock and having it counted in the inventory. Also, last year and the next two years will be used to build stock numbers and invest in soil fertility, reseeding and infrastructure so depending on where farms are sitting regarding output, it may be year four or five before the full benefits of their investments are realised.

It is a worrying trend, however, that some systems such as the weanling producers continue to struggle and this is an area the programme team will focus closely on. Finishing systems continue to dominate the higher e-profit monitor margins and should continue to do so in future. The biggest issue facing these programme farmers and any farmer increasing stocking rate or changing system is cashflow. These farmers will have a two-year wait to cash in any stock increases and provisions must be made in terms of bank facilities or cash in bank to carry the farm through the cash deficits in the meantime.