Bouquet for Australian beef producers

Farm Weekly, SHAN GOODWIN 27 Jan, 2017

AUSTRALIAN beef producers have been able to contain cost-of-production blowouts amid record cattle prices.

And a major global analysis has shown they are holding their place as some of the most efficient in the world.

The latest release from agriculture economists and farm advisers Agri Benchmark, which has a cattle network of more than 30 countries covering 90 per cent of world beef production, shows Australian beef producers at their most profitable since 2006.

The work, commissioned by Meat and Livestock Australia, uses 2015 data, with perspectives running into last year and its authors say all indications are the profitability trend has continued into this year.

Key to improved margins, naturally, was higher returns for cattle but in many situations, producers had also been able to reduce costs, often on the back of a high Australian dollar, according to Charles Sturt University agribusiness lecturer Dr Karl Behrendt.

Dr Behrendt and Sydney-based global meat and livestock consultant Peter Weeks wrote the report.

“Low costs of production (COP) in relation to other beef-producing nations has been the status quo for Australian operations throughout the 13 years Agri Benchmark has been undertaking comparative analysis in the cattle industry,” Dr Behrendt said.

“Our rankings change is based on where in Australia you are producing, and are influenced by drought and feed prices, but we remain an efficient beef producer,” he said.

What drives that?

“A combination of things,” Dr Behrendt said.

“The rising costs of inputs in Australia, a deregulated market in respect to prices received and the fact Australian producers do not have access to the subsidies our competitors have which has meant our farmers have had to become super efficient.

“It takes pain to be a world leader but it does allow the producers who can do it to become very efficient.”

In breeding operations, Australia’s COPs are comparably very low but on par with similar systems in South America, one of our major competitors on the global beef scene.

This is despite Australia ranking at the top of the world in terms of labour costs.

Australia’s average wages paid for employed staff in 2015 were around $US19 per hour, with the opportunity cost of family labour around $US21/hr.

“European countries averaged $US15/hr, excluding Russia at $US4/hr. South American averaged $US7/hr.

“In Brazil, both labour and capital input costs are lower but they don’t have the same efficiencies as us generally speaking, although there are pockets in Brazil just as productive,” Dr Behrendt said.

“We are well under half in COP compared to Europe and over the longer term we tend to travel 20 to 30 per cent below the US.”

Finishing systems proved less profitable than cow-calf enterprises, in line with what happens globally.

“All the beef farms we analyse in Australia have both systems in the one operation and we split the two to look at the profit from each of those processes,” Dr Behrendt said.

The value of weaners is a major contributor to less profitable finishing, with prices historically solid and sourcing young cattle is one of the biggest costs – up to 80pc in some businesses.

The report shows in comparison Australian breeding businesses have more diversified whole farm systems, moderate-to-low weaning rates and moderate-to-low productivity per cow.

“That is affected by northern systems, where reproductive rates are comparatively low, along with growth rates and turn-off weights,” Dr Behrendt said.

Australian breeders have lower revenues due to significantly lower weaner prices – 30pc lower than South America and only a third of the prices received in North America – and cull cow prices, although there had been a 30pc improvement in total returns from 2014 to 2015.

Higher labour productivity, in terms of kilograms of liveweight beef produced per hour of labour input, had compensated for higher wage rates, the report said.

Meanwhile, Australian beef-finishing systems have moderate-to-high weight gains in southern systems but low weight gains in the north, partly due to drought but mainly due to feed base.

The report found that apart from the Ukraine, Australia had the largest rise in cattle sale prices in local currency terms in 2015, followed by South American countries, New Zealand, Russia and Canada.

It said profitability fell marginally for most countries and few countries could, at the moment, boast long-term profitability in beef production.

That, together with continued drought and growing resource and environmental constraints, led the authors to conclude the global beef supply response this year would be moderate and unlikely to lead to a major beef price over-correction.