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Thursday, February 08, 2018

Cattle producers have best year ever…again

By Angus Brown  |  Source: LFMP

Key points

  • South West Victorian cattle producers had their best year in 47 years of the Livestock Farm Monitor Project.
  • The top 20% of cattle producers in the South West and Gippsland made huge margins.
  • Lower prices are likely to see gross margins weaken this year, slowing herd rebuilding.


Beef -1

Beef -2

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A couple of weeks ago we took a look at some Victorian benchmarking data outlining the profitability of sheep and wool enterprises. Cattle producers were also included in the data, and given the high prices we shouldn’t be surprised that they had their best year in the last 47. That makes it two years in a row.

Figure one shows the long term data for South West Victoria, with strong prices seeing 2016-17 eclipsing the 2015-16 numbers by $38/ha.  The extraordinary gross margins of $668/ha were up 6% on last year in real terms, and miles ahead of any other year except for 2010-11.

Other regions showed similar strong performance.  Figure 2 shows that Northern Victoria had a slightly lower cattle gross margin per 100mm of rainfall than the south west, while Gippsland was the best performed, with $90/ha/100mm. 

The most striking bar in figure 2 is the performance of the top 20% of cattle producers in Gippsland, they achieved gross margins of $261/ha/100mm.  The top 20% of Western Victorian Cattle producers were no slouches, but were nearly $100 behind Gippsland, at $164/ha/100mm.

Figure 2 also shows us the ‘average’ cattle producers did a bit better than lamb producers in the South West and Gippsland, but marginally worse in Northern Victoria.  The top 20% of cattle producers were streaks ahead of their lamb counterparts in Western Victoria and Gippsland, but in Northern Victoria, they made just $1 more.

Along with high prices, the season was also favourable as it all came together for cattle producers.  However, figure 3 shows that cattle gross margins were maybe not as strong as prices might suggest.  The 2016-17 point is above the trend line, which suggests gross margins should be somewhere near the top 20% in Gippsland. 

Cattle producers are likely to have taken the opportunity to spend some money on ‘repairs and maintenance’, increasing variable costs and pulling gross margins lower than where they might be under normal spending patterns.

What does this mean?

With the fall in cattle prices since last winter, cattle producers are unlikely to continue the run of higher gross margins in 2017-18.  With weaner cattle prices back around the $1000/head mark, gross margins might fall back to $500/ha in South West Victoria.  Still a great margin, just not as good as the last two years.

Expected weakening in cattle margins, and continued strong sheep, lamb and wool prices, will halt any shift back towards cattle which might have been brought on by recent high prices.  At least in the south the herd rebuilt might slow.

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