Invest to produce more beef
How best to spend your extra dollars from high cattle prices.
BEEF producers are finding on-farm productivity investments that may have stacked up marginally in the past are now paying solid dividends, given the strength of the cattle market and forecasts out until the end of 2018.
The message to ensure capital allocation decisions have a degree of vigour has never been stronger, farm business consultants say.
With the Eastern Young Cattle Indicator (EYCI) yet again pushing towards the 600 cents a kilogram carcase weight level, and the understanding that any price correction next year is still likely to see returns settle at a level above the five-year average, the aim should be pulling out all stops to produce as much beef as possible, the experts say.
Weather models are pointing to rain in south‑eastern Queensland and northern New South Wales at the end of the week which should rev up herd rebuilding yet again and underpin the strength in the market.
“One of things we are finding with the situation analysis we are doing at moment is that things have changed in the area of on-farm investment,” said southern NSW consultant John Francis, Holmes Sackett at Wagga Wagga.
“Things that didn’t work before because prices weren’t as good as now working.
“Options such as pasture improvement - anything that you can squeeze more production out of - are now very worthwhile.
“Income is high, prices are good. While that is the case you have to be producing as much as possible.”
Southern Queensland consultant Ian McLean, Bush Agribusiness, Toowoomba, said catch-up on repairs and maintenance and a fair bit of debt reduction was still taking place.
Reinvestment was aimed at lowering costs of production and building a protective moat around beef businesses in the form of a stronger balance sheet, he said.
Both consultants said cost benefit analysis had to be ongoing and was not necessarily a complex concept.
“It’s just a matter of identifying the issue to be addressed, determining the outlay and putting a figure on the expected pay-off,” Mr McLean said.
“Even though interest rates are low at moment, consider the long term cost of debt - any investment has to generate a higher amount than that cost.”
How to allocate capital in a rational manner will be a key topic in Meat and Livestock Australia’s comprehensive two-day BusinessEdge workshops for owners and managers of grazing enterprises this month.
More than 500 producers have completed the course across northern Australia and it is now scheduled for Werai in the NSW Southern Highlands on November 29 and 30.
How to understand key profit drivers, managing financial risk, why your income tax return is of limited value in business decision making and how to interpret financial statements are a few of the topics covered.
For details phone 0435052255 or visit www.holmessackett.com.au/workshops/business-edge-workshops.aspx.