Livestock: Know Your Costs?!

6th December 2013

Winter is just around the corner and most of us have now brought all of our stock in doors following what was a fairly forgiving autumn. Unfortunately, however, this period of helpful weather has not been the norm and on the back of freezing cold springs and soaking wet summers, the issue of cash flow is rearing its head and looking like a real problem for both arable and livestock farmers alike.

It is during these times that adaption and innovation should be called upon to help draw out some of those hidden costs and establish transparency at a gross margin level. A classic example is where home-grown cereals are taken from an arable enterprise and used as livestock feed – leaving the unanswered question, how much is that enterprise actually costing you? It is only by going through this process that you can gain some grounding to answer those difficult business decisions which should be a proactive exercise rather than reactive.

In terms of the ‘market’, the beef trade has continued to maintain a healthy position with both store and deadweight prices remaining competitive following the horsemeat scandal back in early April whilst lamb has fluctuated in its usual fashion in line with market supply and demand. However, unfortunately the pounds and pence achieved per kilogram is only one part of the jigsaw puzzle. Now that the nights are drawing in, there is a chance to get in the office, crunch some numbers and forecast what your business is going to look like in 12 -24 months’ time.

As ever, cash flow requirement is going to be critical and understanding where the peaks and troughs will occur is crucial. Bearing that in mind, now could be the time to pre-empt the awkward conversation with your bank manager and set up a meeting to discuss an overdraft extension. In addition, is it likely that you might receive a rent review notice? One would hope not, but if so, what impact will that have on the bottom line? Having an understanding as to how sensitive your business will be to change could be the difference between sink or swim.

Exploring cost saving opportunities is always a useful exercise but it is important to try and get the right balance for your farm.

Some useful ideas:-

Straw prices remain high, not helped by uncertain weather making it an easy decisions for the arable farmer on whether to chop or bale. When buying straw in, costs include baling, leading, bedding, regular mucking out and spreading. When calculated through, this comes to quite a considerable cost. One alternative could be to opt for a sawdust or woodchip alternative. The initial cost per tonne is similar to that of straw but savings are made by not having to bed or muck out as regularly whilst also potentially reducing feet problems. But remember you need to have agricultural waste exemptions in place first.

Is the ration correct? Nutritional advice from specialist feed producers can ensure that value for money is achieved leading to an impact on the bottom line with increased daily live weight gains. DEFRA are currently exploring the possibility of another round of the Farming and Forestry Improvement Scheme (FFIS) grant which includes payments for stock handling equipment including weigh cells to review the benefit.

Waste control – how much feed is ending up the on the floor rather than benefitting the animal? When you think back to the cost and effort that has gone in to getting that forage from field to trough, it seems madness not to try and mitigate loss. Look to be innovative – could you fabricate bunkers rather than traditional hay hecks or outdoor feeding? The next round of the Catchment Sensitive Farming (CSF) grant is fast approaching which includes a contribution to the cost of roofing stock feeding areas.

Concentrate prices also remain high. The timings of bulling / tupping can create a cost saving by pushing everything back a few weeks to calve and lamb on to growing spring grass resulting in reduced concentrates requirement and less disease.

To summarise, having a clear understanding of your business financials could easily become a very time consuming piece of work but certain tools can make this process much more straight forward. It is only by having that knowledge in place that you can gain a better understanding of your business to date, and more importantly, where you will be in the future.

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