Growing profitability on a calf-to-beef farm in Co. Westmeath

By Teagasc Green Acres programme advisor James Fitzgerald

Farming just outside Moate, Co. Westmeath, Irvine Allen has been a participant in the Teagasc Green Acres Calf to Beef Programme since the spring of 2019.

In following the plan drawn up for his farm, he is now rearing 110-120 Holstein Friesian bull calves each spring and will carry these through to slaughter from 21-30 months-of-age.

Prior to enrolling in the Teagasc Green Acres Programme, Irvine was rearing a mixture of autumn and spring-born Holstein Friesian bull calves and early-maturing bull and heifer calves, bringing them through to finish from 24 to 30 months-of-age.

A legacy of that system means that the last of Irvine’s early-maturing heifers and bullocks are being finished at the moment, and later this year he will begin finishing the first of the spring of 2020 born Holstein Friesian steers, as part of his new farm plan.

In this article, we will track the financial performance of the farm to date in the Teagasc Green Acres Calf to Beef programme, and outline where the current plan is set to take us.

Rising output per ha

Central to generating enough income to cover the fixed and variable costs of running a calf-to-beef farm is achieving a high level of beef output per livestock unit and per hectare.

For the majority of the Teagasc Green Acres programme farmers this means an increase in overall farm stocking rate, with Irvine being no different.

Table 1: Stocking rate & gross output for Irvine’s farm from 2019 to 2022

Over the course of the programme the stocking rate of Irvine’s farm is set to increase by almost 1LU/ha. A substantial increase in stock numbers carried on the farm such as this will increase the overall output of the farm from 703kg live weight/ha, to 1,269kg live weight/ha.

This will increase the sales revenue from €1,708/ha to €2,516/ha.

However, as is the case with all beef systems, there is a time lag between when you begin to increase stock numbers, and when you see the sales revenue lift as a result of it.

Currently Irvine is going through that period of increased stock numbers, and the increased costs associated with rearing them, but not yet having the level of sales income to offset these costs.

Because of this, Irvine is keeping a close focus on spending and cash flow this year, spending only where necessary and where he knows he will see a return on his investment, until such time as he begins to kill dairy beef stock in higher numbers later this year.

Controlling costs

The rule of thumb for calf-to-beef systems is for the variable costs to be half that of the gross output. The variable costs of a farming system are all the cash costs associated with production and are for the most part, directly linked to the amount of livestock you are running on your farm.

The main variable costs in grassland beef systems are feed, fertiliser, veterinary charges and contractor charges.

A breakdown of the average variable costs as well as the other major financial parameters for the Teagasc Green Acre farms has previously been outlined.

As the stock numbers that Irvine is carrying on his farm increase, an increased level of variable costs is expected.

In truth, the only way to manage this period of increased costs, before the increased income is seen is to focus on efficiency – both in animal performance and financial spending – and making sure that the funds needed to bridge the gap are available to you before you start to increase stock numbers.

As the increased stock numbers come available for killing the return on investment in increasing stock numbers will be seen.

Measuring how efficient the system was in rearing the extra stock can be gauged from the net margin generated from these cattle when slaughtered.

The farming system will at this stage level out with no changes in stock numbers expected from year-to-year.

When this happens, the net profit of the farm given by the profit monitor report will be aligned with the actual monetary income of the farm, and not a projected monitory income based on the increased value of stock on the farm.

Fixed costs

The fixed costs of Irvine’s farming system in 2020 were €603/ha and have been at similar levels for the previous number of years.

In years to come, should the current winter housing and calf rearing facilities be upgraded, the fixed costs for the farm could rise by €125/ha (to €728/ha).

This is provided that other fixed costs such as machinery running, repairs and maintenance, insurance and land lease costs, remain the same.

Net margin

As is the aim for all of the farms involved with the Green Acres programme, a objective of €500/ha net margin is targeted.

With an projected gross margin of €1,028/ha for this year and fixed costs to remain at €603/ha, Irvine is on course to have a net margin of €425/ha this year – albeit with a significant proportion of the increased profit coming from inventory changes.

In 2022, when Irvine has a full complement of 110 cattle being slaughtered, a gross margin of €1191/ha and elevated fixed costs of €728/ha are expected to leave a net margin of €463/ha – none of which will be in the form of inventory changes.

A very significant variable – which is yet to be mentioned – in the profitability of calf-to-beef systems is the beef price. The above projections are based on a base price of €3.75/kg with all cattle being killed through the QPS grid.