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Fixed Costs Key To Improving Suckler Herd Margins

23 November 2011
EBLEX

UK - Effective management of fixed costs could be key to beef suckler herd producers achieving better returns.

An analysis of figures from the 2011 EBLEX Business Pointers costs of production survey show there is a £250 per head difference in fixed costs between top third and bottom third lowland suckler herd producers in England, with £95 difference in variable costs. Similarly, for suckler herds in Less Favoured Areas (LFAs), the difference on fixed costs is £176 per head between the top third and the bottom third, while variable costs are £93 per head higher for those in the bottom third.

This is contributing significantly to a difference in margins, with bottom third lowland suckler producers making a loss of £397 per head compared to a modest £4.60 positive margin for top third producers after cash costs. In LFAs, top third suckler herds are seeing returns £261 better than those in the bottom third.

“While we are seeing higher prices for beef cattle at the moment, this does not necessarily translate into significantly greater returns for all producers if they have inefficient practices,” said Mark Topliff, senior analyst with EBLEX.

“What we can see from the Business Pointers data from the year to March 2011 is a huge spread in terms of inputs which has a huge impact on the bottom line. When you drill down into the fixed costs for lowland suckler herds, power and machinery is one of the biggest areas of disparity. The less efficient producers are contributing £110.70 per head towards the machinery upkeep and running costs, as well as £78.29 in depreciation (machinery and fixings). The figure for those in the top third in terms of machinery is £37.63, and of course less machinery means less depreciation, at £27.36.

“This suggests some producers have higher machinery costs than their enterprise can effectively justify and is an area which should be reviewed.

“It is also interesting to see that contract costs are significantly higher for the lower performers, further suggesting that they perhaps have too much machinery: if contractors are doing more of the work, less machinery should be needed.”

Other contributing factors to fixed costs which could be reduced include labour costs, administration charges and contract fees.

Variable costs can also be cut by addressing issues like feed prices, vet bills and bedding.

“Working smarter with feed, for instance changing what it is exactly you buy to take advantage of best prices or growing more of your own forage crops, having a more strategic approach to animal care to reduce vets bills rather than racking up higher fees in terms of emergency treatments for animals, and maximising bedding efficiency can all help in this area,” added Mr Topliff.

To view the full Business Pointers report and to see break down on individual enterprise types, visit www.eblex.org.uk/returns/businesspointers11.aspx

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