Teagasc Green Acres farm profit improves in 2020

By Alan Dillon, Teagasc Drystock Specialist/Green Acres Programme Manager

The Teagasc Green Acres Dairy Calf to Beef programme finished its second year on December 31, 2020.

Profitability has improved across most of the programme farms for 2020 with an average net profit of €455/ha recorded. No subsidies of any description are included in the figures quoted.

There is big variation in the level of profit between these 12 farms with the highest level of profit being €1,140/ha and the lowest being €18/ha.

The average grassland stocking rate across all the farms was 2.31 LU/ha while a gross output of 1,284 kg of live weight per hectare was achieved.

This translates to 556kg of live weight being achieved on each livestock unit across programme farms which includes a mix of heifers, steers and young bulls.

Typically, dairy-beef systems have much higher levels of output than suckler beef systems, due to the lack of a suckler cows utilising grass and shed space. This allows for more beef to be produced from the hectares available on the farm.

Output is key to achieving profit in any system, and the lower stocked farms on the programme struggled to achieve above break-even.

Our lowest stocked farm at 1.56 LU/ha achieved €225/ha net profit, while our highest stocked farm at 3.34 LU/ha achieved €1,140 per hectare net profit. Total sales were €2,356/ha while purchases were €366/ha.

Inventory changes

It should be noted that there was a significant inventory increase on some of the programme farms.

This is the estimated value of the extra livestock that are being built up on the programme farms and this calculation is used in all Teagasc eProfit Monitors and all tax accounts.

While this valuation is an average estimation of what the stock are worth, it is hoped that it will translate into cash once the stock are slaughtered or sold live in 12-15 months’ time.

The average net inventory change recorded was an increase of €392/ha across all farms, but the variation of inventory change between farms was much higher, with some farmers having less stock at the end of the year than the previous one, and others having increased stock numbers significantly.

Taking the inventory as it stands, the farms achieved a gross output per hectare of €2,383 or €1,036/LU.

Variable costs

Variable costs across the farms came in at €1,284/ha or €556/LU. The target for the programme farms is that variable costs would be 50% of gross output. The farms in this scenario achieved 53% which leaves some room for improvement, but isn’t far off the target.

The biggest variable cost on farms was feed and milk replacer which cost €678/ha.

Again, a big variation is seen here, with an autumn calf system finishing Friesian steers off grass at 24 months having feed and milk replacer costs as low as €185/ha -compared to a highly-stocked bull finisher having a feed and milk replacer cost of €1,844/ha.

Fertilizer costs averaged €184/ha across farms. The highest was €394/ha which was a highly stocked farmer which had to invest in soil fertility compared to the lowest of €115/ha which was a more moderately stocked farm which already had good soil fertility.

Vet costs averaged €125/ha with the highest being €250/ha on a farm which experienced health issues with calves. Vet costs would have generally remained higher than previous years on these farms due to the onset of vaccination programmes.

While there is a cost to implementing these vaccines, there is much less antibiotics being used on the farms and less set backs in calves.

While contractor costs averaged €157/ha, there was a wide spread across farms with some exceeding €300/ha. Some of the programme farmers would have their own machinery for slurry and silage operations, while some have little more than a fertilizer spreader and a topper.

Incidentally, the farm with the highest level of contractor charges was the most profitable in the programme.

Other variable costs averaged €143/ha which include straw, polythene for silage, levies and haulage of cattle etc.

Taking gross output at €2,383/ha and variable costs at €1,284/ha gives us a healthy gross margin of €1,098/ha.

Fixed costs

Fixed costs have been the subject of much debate in media over the years with some arguing they are not high enough, and some saying they are not low enough, in quoted articles.

The fixed costs for the 12 Green Acres farms was €644/ha, similar to the figure of €616/ha quoted for the top third of non-breeding farms in the Teagasc 2018 eProfit Monitor booklet.

The three biggest fixed costs were machinery running costs, depreciation and land lease.

Machinery running cost an average of €101/ha, with a high of €252/ha on a farm with a lot of its own machinery to run and repair.

Depreciation cost €135/ha with a high of €342/ha on a farm with a large amount of new buildings completed in recent years.

Land lease costs were €107/ha with a number of the farms having some proportion of land leased. The highest cost for land lease was €461/ha on a farm with close to 100% of grassland leased.

The total fixed costs hit a high of €1,270/ha on a moderate sized farm with leased land and high depreciation, compared to a low of €315/ha on a large farm with all owned land and lower levels of depreciation.

The number of hectares being farmed can affect fixed costs dramatically, with the larger farms typically having their fixed costs diluted down to a greater degree than smaller operations.

Net profit

The overall result was a net profit of €455/ha excluding subsides.

While a lower calf price on some breeds such as Friesian bulls in 2020 helped to some degree to lower costs, beef prices of as low as €3.45/kg base price in spring 2020 did challenge our farmers to find ways of increasing efficiency and cutting costs without hitting performance.

It should be noted that the Beef Finisher Payment was not included in our profitability results for any of the programme farmers who qualified for the payment.

Table 1. Outputs achieved on Green Acres farms €/ha

Table 2. Variable costs on Green Acres farms €/ha

Table 3. Fixed costs on Green Acres farms €/ha

Prospects for 2021

The biggest issue facing farmers currently is that calf prices rose slightly on the spring purchases so far, with Friesians coming in at similar prices to last year, but early maturing breeds increasing.

With beef prices currently only marginally ahead of last year overall, this could erode some of the prospects to increase profitability in excess of €500/ha.

Calf quality has improved on farms and any health issues that were experienced in the first year of the programme have largely abated due to proactive herd health planning.

Grassland management skills are being improved each year and silage quality was on target last winter.

Overall, the Teagasc Green Acres farmers are in a better place financially than where they were two years ago, but farmers do need to watch calf purchase price carefully. Overpaying for the calf on day one means potential profit can be gone before you start.