At current beef prices, the thoughts of finishing cattle over the winter period are – to put it mildly – uneconomical and unsustainable.
In recent weeks, processors have cut 5c/kg off base quotes to leave base quotes in the region of 370-375c/kg for under 16-month bulls.
These low quotes – coupled with fodder issues and rising concentrate costs – have left very little confidence among farmers who would normally finish bulls over the next few months.
Looking at prices paid during the week ending April 15, 2018, R=3= and U=3= young bulls averaged 407c/kg and 421c/kg respectively at slaughter.
Prices paid for R=3= and U=3= young bulls – during the week ending June 17 – averaged 425c/kg and 445c/kg respectively.
Teagasc recently released its break-even prices for the forthcoming feeding period. Outlined below are three different finishing systems for continental bulls:
- System one: A 230-day (eight-month) finishing period, where bulls are purchased weighing 320kg and fed a silage and meal-based diet;
- System two: A 180-day (six-month) finishing period, where bulls are purchased at 420kg and fed an ad-lib meal diet of concentrates;
- System three: A 235-day (eight-month) finishing period, where bulls weighing 420kg are bought and finished on concentrates ad-lib.
Assuming that a 320kg young bull – fed silage and meal – would be finished over a 230-day period – gaining 1.25kg/day – a 346kg carcass (608kg live weight) would be expected to be produced.
Looking at different purchasing costs, if the bull was purchased at a lower ‘autumn 2018’ price of €2.36/kg (€755/head), this animal would need to achieve 406c/kg or €1,405/head to provide the farmer with sufficient funds to cover his/her costs.
If the bull was purchased for €2.46/kg or €787/head, a price of 415c/kg or €1,437/head would be needed for the farmer to break-even.
Finally, moving to a higher purchase price of €2.56/kg or €819/head, the farmer would need to receive a price of 425c/kg or €1,470/head at slaughter.
These costs include: variable costs at €514; and fixed costs at €136. Therefore, total costs plus purchase costs gives us the break-even price.
If the farmer is finishing bulls ad-lib on a concentrate diet (4kg/head/day adaption period and 11.5kg/head/day finishing period) – over a 180-day period – a 420kg continental bull would be expected to have an average daily gain (ADG) of 1.5kg/day and achieve a carcass weight of 385kg (675kg live weight).
Assuming a lower ‘autumn 2018’ purchase cost of €2.14/kg or €899/head, the beef finisher would require 426c/kg or €1,640/head from the processor at slaughter.
Taking an October purchase price of €2.24/kg or €941/head, this bull would need to achieve a price of 437c/kg or €1,682/head to provide the farmer with sufficient funds to cover his/her cost.
Looking at the higher purchasing cost or €2.49/kg or €1,046/head, farmers finishing bulls would need a return of 448c/kg or €1,725/head to break-even.
Teagasc estimates that variable costs and fixed costs for this system stand at €631 and €110 respectively.
The last system involves finishing bulls over a period of 235 days and feeding meal at 4kg/head/day for the adaption period (20 days) and at a rate of 12kg/head/day thereafter.
Assuming an ADG of 1.35kg/day, these bulls should achieve a carcass weight of 421kg (725kg live weight).
Taking a lower ‘autumn 2018’ cost price of €2.14/kg (€899/head), this animal would need to achieve 449c/kg or €1,890/head to provide the farmer with sufficient funds to cover the costs of production.
If the bull was purchased for €2.24/kg or €941/head, a price of 458c/kg or €1,928/head would be needed for the farmer to break-even.
Finally, moving to a higher purchase price of €2.34/kg or €983/head in October, the farmer would need to receive a price of 467c/kg or €1,966/head at slaughter.
With this ad-lib finishing system, Teagasc has estimated variable costs at €843 and fixed costs at €146.
Finishing bulls at the most expensive time of the year requires farmers to operate systems efficiently and achieve high average daily gains. Based on the above estimations, Teagasc assumes a high level of efficiency.
An excellent animal health programme is essential and Teagasc attributes €35/head to cover such associated costs. Transport and marketing of the bulls was estimated at €40/head.
Making a profit margin
The above analysis only outlines a break-even cost and this is simply just not good enough; beef finishers need to – and deserve to – make a decent margin.
With these type of systems, it is the beef farmer that takes 100% of the risk. There is a lot of talk about sustainability and protection for the beef sector.
However, sustainability goes out the window when it comes to a fair price for beef finishers. How long are they expected to be price takers?
If a margin of just €20/head was targeted, an extra 5c/kg would have to be added to the break-even price mentioned above to allow for such a return.
Targeting a margin of €100/head, farmers are looking at somewhere in the region of 30c/kg extra on break-even prices.
These are extremely high-risk systems and the outcome is based on the purchase price of the animal and the selling price to the factory.
Farmers are urged to talk to their processors before any decision is made to finish bulls this winter.