Is No Change an option for Beef and Sheep Producers?

De-coupling of subsidies, a volatile beef price during 2005, the Nitrates Directive and the prospect of the SFP cheque are just some of the topics that are exercising the minds of beef and sheep producers, at present. Expand, contract, change from beef to lamb production and give up conacre are options for consideration by beef producers. Suckler cow herd owners should consider finishing all the calves produced in their herd and adjusting cow numbers accordingly. There are hidden efficiencies from finishing calves born on your own farm.

Management of ‘common fixed costs’ (often more than 50 percent of total costs) is one of the big differences between farms. What are the ‘common fixed costs’? Machinery, tractor and vehicle maintenance, insurance, water, electricity, telephone, building repairs and depreciation of machinery and buildings are grouped as common fixed costs. Other fixed costs include conacre rent, finance charges, and labour costs. Increasing stock numbers without affecting the fixed costs unduly, that is, no new machinery or buildings, is beneficial because similar total costs are being carried by more units of production. Common fixed costs per cow or per animal will be less than prior to the expansion.

Reducing stock numbers will have little effect on the total fixed costs. It may reduce or eliminate the conacre bill but unless machinery, tractors or vehicles are sold, maintenance costs and depreciation will be very similar. Building repairs and depreciation will be unaffected by any reduction in numbers of stock. While depreciation is not a cash figure, great care needs to be exercised in estimating fixed costs for a farm business that is contracting in size.

With the de-coupling of subsidies in most cases in suckler herds the sale of stock covers the variable costs and makes some contribution to fixed costs. Part of the Single Farm Payment may have to be used to cover the remaining fixed costs. Production efficiency will dictate the proportion of the SFP that is required to cover fixed costs. However, if conacre is being taken to sustain herd size, reducing stock numbers may be beneficial if the conacre bill can be reduced or eliminated.

Suckler herd owners need to adapt to the changes in subsidy arrangements. Each farm business needs a critical examination of its costs and returns to make best use of its Single Farm Payment. An informed assessment of your own situation can only be undertaken if you know your costs and returns. The Greenmount Beef and Sheep Benchmarking system is an ideal way to accurately assess the health of the business.

If you wish to undertake this free, confidential service contact Nigel Young on 028 9442 6812. Beef and Sheep farmers who benchmark their business can avail of the services of a beef and sheep development adviser who will assist in assessment of business options.