This is a subscriber-only article
Is there a profit to be made from finishing cattle out of the shed this winter?
It is a question beef farmers will be giving careful thought to over the coming weeks, as autumn gets underway and grazing comes to an end.
Beef prices are 40p/kg, or 10%, ahead of this time last year. While normally this would be a positive for farmers, input costs have soared to unprecedented levels, absorbing the rise in beef price and squeezing margins.
Price quotes for beef finishing rations at the outset of September are in the region of £350/t to £380/t, an increase of £100/t to £140/t from last autumn.
Forage costs are also higher given the rise in fertiliser and contractor charges, while diesel costs have doubled.
Electricity, routine health treatments, finance costs on machinery, sheds and borrowed capital are also up compared to last year and have to be kept in mind.
Adding further cost this winter on many farms will be silage quality. First cuts are not as good as previous years due to a later harvesting date this year, either because of wet weather or by opting for bulk to eliminate the costs associated with a second cut.
But ultimately, the biggest contributor to overall beef finishing costs is the price of stores. Demand in the live ring is good, with prices being paid for forward stores up anywhere from 20p to 50p/kg from last autumn depending on cattle type, quality, weight and the level of buying competition.
Budgeting
With input costs at unprecedented levels, farmers need to do their sums carefully before committing to feeding cattle this winter. Otherwise, there is a real risk of significant losses being incurred.
If the sums do not add up, it is better to know this now before filling the shed and losing money.
Similarly, for farmers operating a birth to beef system, if the margin isn’t there, cattle can be offloaded through marts this autumn, improving cashflow and eliminating finishing costs.
Of course, there are farmers that have little option but to bring cattle through to slaughter. Herd restrictions following a TB breakdown mean alternatives are limited.
Unless the farm is stocked at a very low level, there isn’t the option to store cattle through to finish off grass next summer.
To try and get a handle on breakeven costs for finishing cattle this winter, our calculations are based on a farmer purchasing R- and U-grade type bullocks around 550kg liveweight on 1 October.
Assuming an average purchase price of 235p/kg, cattle will typically cost £1,293/head. For a farmer breeding their own cattle for finishing, as this is a potential market value for selling bullocks live in early autumn, it should also be used as the starting point for a finishing budget.
Store period
Bullocks are stored for 100 days following arrival on-farm. During this period, they consume on average 25kg/day of silage, plus 3kg/day of a general purpose cattle ration (£370/t). Parasite control is also administered and costs £10/head. Silage is costed at £26/t, based on three bags/ac of CAN (£600/t), £50/ac for slurry, £15/ac for weed control spray and £85/ac for contractor costs, with 9t/ac harvested.
The example assumes silage quality is down on previous years, following a two week delay in harvesting date.
This is partly offset by feeding 3kg/day of concentrate, rather than 2kg/day. Weight gain during the store period averages 0.5kg/day, bringing liveweight to 600kg at the end of the store period. Feed costs, plus parasite control treatments during the store period, come to £186/head.
Finishing phase
Once cattle hit 600kg, they are moved to a system where they are intensively finished over 90 days. Meal levels start at 4kg/day and finish on 9kg/day to compensate for average quality silage. Assuming bullocks eat an average 7kg/day of a high maize ration (£370/t) during the finishing period, the animals will consume 630kg of meal costing £233/head.
Silage intakes average 20kg/day with £5/head factored in to cover some miscellaneous costs such as follow-up treatments for lice, replacement ear tags etc.
Input costs for the 90-day finishing period come to £285/head. Adding the purchase cost of the bullocks (£1,293), store period feed costs (£186) and overhead costs of 50p/day, the final breakeven costs come to £1,859/head.
Beef price
Assuming that the bullocks gain 1.1kg/day over the 90-day finishing period, they are in the region of 699kg liveweight at the time of slaughter.
At a kill-out of 57%, this yields a carcase weighing 398kg and means the farmer needs a breakeven beef price in the region of 467p/kg. A £50/head margin adds another 13p/kg to this price.
Every 10p/kg change to the purchase price of the bullocks alters the final breakeven price by £55 and the beef price required by 14p/kg.
Therefore, if the bullocks are bought at 225p/kg, breakeven beef price is reduced to 453p/kg before any profit margin is factored in.
However, it must be noted that as the purchase price of cattle falls, there is likely to be a drop in cattle quality. These animals may not have the genetic potential to realise a weight gain of 1.1kg/day in the final finish period, so the carcase weight will be lower than that of the animals in the outlined example.
As ration price changes by £10/t, it alters the breakeven beef price by 2.5p/kg on a 398kg carcase. So, if a farmer is paying £100/t more for concentrate this winter, this has effectively put 25p/kg onto costs.
The outlined example is intended for beef finishers to use as a template for calculating winter finishing costs.
On individual farms, there will be some inputs that will cost more and some that cost less. But overall, the costs we have included are reasonable. It must be noted that the example assumes top-quality management at all times to achieve the outlined weight gains.
Cattle that are not managed to their potential will take longer to finish and are more likely to produce a lighter carcase, thereby increasing breakeven costs. Other cattle might exceed the performance used in our calculations, but ultimately it is the average across the group that matters.
Price outlook
While all input costs have gone up, the only thing in the beef sector coming down in recent weeks has been factory prices.
Beef price has fallen by around 10p/kg from the record levels around the 450p/kg mark in late June. Factory agents are continuously talking the trade down at present, telling farmers there are plenty of cattle available and sales are slow. If prices remain as they are currently, then based on the outlined example, our analysis would suggest this will be loss making.
It should also be noted that farmers are not immune to the current cost of living crisis and need to make profit to pay bills. A £50/head margin included in our example will contribute little to feeding a family this winter. It is also wrong to suggest that store cattle are too expensive – the farmer producing them needs every penny they get.
SHARING OPTIONS: