No beef production system profitable at current beef price

No beef production system in Ireland is profitable at the current base price of €3.50/kg. This was the stark reality outlined to farmers by Teagasc head of drystock Pearse Kelly at a beef meeting in Kilkenny on Tuesday night.

At the meeting, jointly organised by Teagasc and Kilkenny IFA, Kelly showed that at a base of €3.50/kg and assuming farmers received an 18c/kg payment from QPS (6c/kg conformation bonus and 12c/kg in-spec payment), a suckler-to-beef farmer stands to make a net loss of €151 per cow by keeping a suckler cow and bringing progeny through to beef.

The analysis, which does not include land or own-labour cost, was based on Teagasc eProfit Monitor data, with suckling-to-weanling/store data for 2018 used to calculate the cost of carrying a cow for a year.

This was presented as a cost of €746, taking a good level of reproductive performance and achieving 0.95 calves per cow in the herd.

It also includes fixed costs, with Kelly pointing out that these are often left out in gross margin analysis but they have to be paid and therefore must be included in the calculations.

Teagasc beef budgets for 2018/2019 were used to calculate the cost of taking progeny through to finish as a steer at 24 months of age or heifer at 20 months of age.

The costs were presented as €826 to bring a steer through to finish at an average carcase weight of 377kg and €464 to finish a heifer at an average carcase weight of 296kg.

Breakeven beef price

For the suckler-to-steer system to breakeven, a beef price of €4.17/kg is required, while for the heifer system a beef price of €4.09/kg is required.

The required beef price for a system producing 50% of steers and 50% heifers increases to €4.43/kg to deliver a €100 margin and €4.72/kg to deliver a €200 per head margin.

The finishing budgets are based on achieving good levels of technical efficiency.

Dairy-bred calves worthless

The outlook is equally bleak for dairy beef systems. Kelly said Teagasc carried out extensive work this spring on dairy beef systems which outlined major challenges.

With the beef price falling by 30c/kg since then, it is impossible for dairy beef systems to be profitable at current beef prices.

A Jersey-cross steer would need a dowry of €214 from the producing dairy farm when purchased as a calf

Based on a final sale value of €3.50/kg and targeting a net profit of €200 per head, a Friesian bull calf will lose €128 when brought through to finish, an Angus or Hereford calf is worth just €2 to buy to have any chance of delivering this margin at current beef prices while a Jersey-cross steer would need a dowry of €214 from the producing dairy farm when purchased as a calf.

The data presented was based on 24-month steer beef production systems across three breed types.

The Friesian steer option was based on delivering an average carcase of 316kg and a grade of O-3+.

Payment of the 12c/kg QPS bonus on O- cattle, which is due to come into effect at the end of the month, was included in the analysis, meaning payment will be 18c/kg below the base price.

A breed bonus was also factored into the equation giving an 8c/kg addition to the base price

The early maturing Angus or Hereford steer option was based on achieving a similar average carcase weight of 316kg, and a better grade of O+3+.

A breed bonus was also factored into the equation giving an 8c/kg addition to the base price.

The final option was a Jersey cross steer delivering an average carcase weight of 280kg grading P+3+.

This leaves this steer achieving a price of 26c/kg below the base price.

The respective variable costs in the system were outlined as totalling €744, €696 and €688.

Fixed costs of €233 per head were added in, with all costs based on the system being run with excellent efficiency and at a stocking rate of 2.5LU/ha.

This leaves overall costs at €977, €929 and €921 respectively.

More in-depth analysis on the Friesian steer system showed that at a base price of €3.60/kg, losses would amount to €96 per head.

As already mentioned, at a base of €3.50/kg there would be a loss of €128 while a base price of €3.40/kg would inflict losses over production costs of €159 per head.

A winter finishing budget presented for a continental steer purchased at 530kg and sold at 670kg is outlined in Table 1.

Kelly said the budget is based on achieving high levels of technical efficiency with an average daily gain of 1kg liveweight per day on a silage and concentrate finishing diet.

The price of €2.15/kg is based on MartWatch figures in recent weeks and is the midpoint between the average and top third.

The breakeven price required next spring is €4.21/kg or €4.47/kg to deliver a €100 margin.

Another option of storing such a steer over the winter and finishing off grass is detailed in Table 2. The budget based on achieving 70kg of liveweight gain over a 140-day winter and 120kg liveweight gain at grass requires a beef price of €4.13/kg next summer to breakeven and a beef price of €4.38/kg to deliver a €100 margin.

Kelly highlighted that the system targets are far higher than current prices but do afford a longer period for the market to recover.

Kelly said the loss-making situation in suckler-to-beef systems is not a new phenomenon but losses will be particularly bad at current beef prices.

He warned farmers to sit down and calculate their own figures.

He said the bleak market prospects and losses faced were being compounded by a serious erosion in support payments in the last 10 years.

He said all suckler and beef farmers can do is weigh up their own system and batten down the hatches, avoiding any investment that is not deemed as essential.

There was also a warning for the dairy sector.

Kelly said that if beef prices continue to remain low, dairy farmers need to prepare for a difficult calf trade in spring 2020 and the prospect of not having Irish beef farmers in the market for calves even if they were being given away for nothing.

Dairy-bred Friesian calves would need to be brought through to the reared stage to represent a positive value.