eProfit Monitor Analysis 2003

Drystock Farms

The new Teagasc eProfit Monitor which is an internet based system became available to clients from January 2004. Available through the Teagasc client site www.client.teagasc.ie it allows drystock farmers and their advisers to enter data online. The completed profit monitor can then be used to analyse the physical and financial performance of the farm.

With the introduction of the Single Farm Payment (SFP) from 2005 there has never been more need to scrutinise your farm business.

Having a completed eProfit Monitor will allow you to examine key indicators such as farm output, variable and fixed costs, gross margin (excl. premia) and net profit. This information will leave you in the best position to identify the strengths and weaknesses of your system and ultimately in deciding the best way forward.

This report summaries the results from 176 cattle farms across the country. Within this grouping, 108 were categorised as suckling farms and 68 as non-breeding farms. These farms are considered to be among the top 25% of cattle farms in the country when compared with those that are randomly selected for the Teagasc National Farm Survey (NFS). Up to 20% of the raw data received from farms was rejected from the final analysis on the basis that the data was incomplete.

Where data is presented in the form of top or bottom thirds the farms are ranked on the basis of gross margin excluding premia. Gross margin excluding premia has been chosen because it highlights the level of technical performance and efficiency on farm. It is an important indicator in the post Fischler scenario where the farming activity has to be justified in its own right. There is a high correlation between this figure and net profit per hectare.

Premia for the purposes of this analysis refers to livestock premia and also the compensatory allowance and REPS, if applicable.

TABLE 1 - Comparison of costs and income on the same farms in three years

Profit Monitors Matched Sample (n = 28)
	2001	2002	2003	Change
Physical
Stocking Rate LU/Ha	1.85	1.91	1.73	**
Liveweight Produced Kg/Ha	576	654	556	**
Financial €/ha
Output Value	1380	1532	1552	**
Of Which Premia	634	796	824	**
Variable Costs	456	454	486	**
Gross Margin Excl Premia	290	283	241	**
Fixed Costs	449	476	465	*
Profit Incl. Premia	475	602	601	**
Premia Retained	77%	78%	74%	=

Comparison of 2001,2002 & 2003

Table 1 represents a matched sample of 28 farms with recorded data in each of the three years 2001-2003. The sample is drawn from a mix of both suckler and non breeding farms.

The physical indicators of stocking rate and output in kilograms of liveweight per hectare although showing an initial increase, has declined in 2003. This may reflect some farms entering REPS and/or availing of extensification. This does not appear to have affected overall financial output which has increased over the three years mainly on foot of an increased premia take of €190/hectare.

The trend in both variable & fixed costs has been upward over the period with variable costs showing the larger increase of just under 7%.

Overall the table highlights an increase in profitability per hectare over the three years and, although 2002 &2003 are similar at over €600/ha, this is up €126/ha on the 2001 figure.

TABLE 2 - Comparison of costs and income on the same farms in two years

Profit Monitors Matched Sample (n = 78)
	2002	2003	Change
Physical
Stocking Rate LU/Ha	1.78	1.72	=
Liveweight Produced Kg/Ha	624	576	**
Financial €/ha
Output Value	1440	1469	*
Of Which Premia	774	796	*
Variable Costs	446	469	**
Gross Margin Excl Premia	220	204	=
Fixed Costs	436	425	=
Profit Incl. Premia	558	575	*
Premia Retained	74%	75%	=

Suckling Farms

The above Table 3 examines the performance of 108 suckling farms. These farms may be selling weanlings, stores or bringing all progeny to beef. The farms are ranked on the basis of gross margin excluding premia into top one-third, average of all the farms and bottom one-third.

What is again evident in the 2003 figures is that the top farms tend to be more heavily stocked (0.5LU/Ha) and consequently produce more kilograms of liveweight per hectare (302kgs).

This higher output value in the top farms is mainly due to the extra liveweight produced but also because they captured €75/ha more premia compared to the bottom one-third of farms.

Despite the lower physical output the bottom farms managed to have higher variable costs than the top farms. The top farms did however have higher fixed costs reflecting higher machinery and depreciation costs.

The reward for better overall technical efficiency on the top farms is evident from the higher gross margin excluding premia figure and this is carried through to a higher profit per hectare. At around €800/ha the profit on the top farms is almost 2.4 times that of the farms in the bottom group. Approximately 7.5% of the farms in the group showed a healthy net profit figure in excess of €900/ha. The top farms retained all their premia and a little more as profit. Worryingly though, the bottom third of farms only retained 43% of premia as profit. Unless technical efficiency and output improve on these farms in the future it will be hard to justify their farming activity.

TABLE 4 - Non-Breeding Farms 2003 – Per Hectare Analysis. Profit Monitor (n=68)

	Top 1/3	Average	Bottom 1/3	Top v Bottom
Physical
Farm Size ha	50	45	30
Stocking Rate LU/Ha	1.67	1.58	1.52	=
Liveweight Produced Kg/Ha	618	595	558	*
Financial €/ha
Output Value	1493	1361	1258	***
Of Which Premia	804	895	962	**
Variable Costs	440	449	518	***
Gross Margin Excl Premia	249	17	-222	****
Fixed Costs	430	421	434	=
Profit Incl. Premia	623	491	306	****
Premia Retained	84%	57%	28%	***

Non-Breeding farms

Table 4 highlights the performance of 68 farms whose primary activity involves the purchase of weanlings or stores for further feeding or finishing. Although suckler cows may be present on some of these farms they are not the major enterprise.

Compared to the suckler farms in Table 3, these farms are in general carrying a lower stock level, which reflects the fact that the majority are all claiming high rate extensification. The top third of farms are carrying slightly more stock than the bottom third but are producing 60 kilograms of liveweight more per hectare.

The higher physical output is reflected in the higher output value of €235/ha between the top and bottom third of farms. Even though this type of system is more geared to harvesting a higher premia take per hectare than those in suckling, the top farms claimed almost €160/ha less than farms in the bottom third but had an extra gross margin excluding premia of €471.

Variable costs are €78/ha lower on the top units compared to the bottom third but fixed costs are similar on both. Profit per hectare on the top farms was just over double that of the bottom farms at €623 & €306 respectively. Around 40% of all the farms recorded in this group returned a profit in excess of €600/ha. None of the ranked groups were able to retain all of their premia as profit. The top third did manage to hold on to 84% while bottom third only retained 28%.

The inability to hold on to premia in this system merely reflects the fact that much of the premia was paid out at the purchase of the weanling or store.

A gross margin excluding premia difference of €471/ha exists between the top and bottom groups. More significantly the bottom group have returned a negative gross margin of -€222/ha. This in effect means that the farming activity could not meet production costs. Up to now this could be tolerated because animals were purchased as a means of drawing down premia. In the post-decoupling scenario this will no longer be the case.

TABLE 5– Major Costs on Suckling Farms

	Top 1/3	Average	Bottom 1/3
Total Variable Costs
€/ha	480	469	511
€/kg liveweight	0.67	1.32	2.29
Of which:
Feed
€/ha	181	159	167
€/kg liveweight	0.24	0.41	0.70
Fertiliser
€/ha	105	103	112
€/kg liveweight	0.15	0.32	0.59
Contractor
€/ha	76	84	101
€/kg liveweight	0.11	0.25	0.44
Vet/Meds/AI
€/ha	71	76	80
€/kg liveweight	0.10	0.20	0.33
Total Fixed Costs
€/ha	503	460	431
€/kg liveweight	0.76	1.25	1.89
Of which:
Land Rental
€/ha	68	59	51
€/kg liveweight	0.15	0.14	0.14
Machinery Running
€/ha	100	87	69
€/kg liveweight	0.13	0.19	0.22
Hired Labour
€/ha	37	31	31
€/kg liveweight	0.05	0.07	0.10
Depreciation
€/ha	102	84	73
€/kg liveweight	0.15	0.23	0.36
Interest
€/ha	38	40	45
€/kg liveweight	0.05	0.12	0.18

Tables 5 & 6 highlight the main variable and fixed costs on both the suckling and non-breeding farms. Figures are expressed in both per hectare and per kilogram of liveweight produced.

On a per hectare basis on the non-breeding farms both variable & fixed costs are lower on the top farms compared to the bottom third. On the top suckling units variable costs are also lower per hectare but fixed costs are significantly higher than on the bottom third.

The top farms in both systems had a considerable cost advantage on a per kilogram of liveweight basis primarily on foot of having higher output levels which diluted costs.

In terms of common costs, the top suckling units were able to produce a kilogram of liveweight for €1.19 while the comparable figure on the non-breeding farms was €1.33. Feed, fertiliser, contractor & veterinary make up almost 80% of total variable costs on top suckling farms & almost 87% on top non-breeding farms on a per kilogram of liveweight basis.

On the fixed cost side, machinery running, land rental and depreciation account for between 55-60% of total fixed costs across all the top farms on the same basis.

If total farm income is to be improved on these farms in the future it is evident that it will be achieved through higher output levels through better efficiency - in effect diluting costs. Improved average beef price will also be needed to increase the value of farm output. Winter finishers in particular will need to be rewarded through higher beef prices in spring to compensate for what is a high cost system.

There may also be some potential for reducing costs such as land rental under the new regime. The stacking of entitlements may take the heat out of the land rental market. This may help the top farms in particular where land rental is adding an overall cost of almost €70/ha.

TABLE 6– Major Costs on Non-Breeding Farms

	Top 1/3	Average	Bottom 1/3
Total Variable Costs
€/ha	440	449	518
€/kg liveweight	0.75	0.82	0.99
Of which:
Feed
€/ha	175	180	230
€/kg liveweight	0.30	0.30	0.38
Fertiliser
€/ha	95	90	92
€/kg liveweight	0.17	0.18	0.22
Contractor
€/ha	68	84	90
€/kg liveweight	0.11	0.15	0.17
Vet/Meds/AI
€/ha	43	41	42
€/kg liveweight	0.07	0.08	0.09
Total Fixed Costs
€/ha	430	421	434
€/kg liveweight	0.78	0.87	0.96
Of which:
Land Rental
€/ha	66	51	35
€/kg liveweight	0.16	0.13	0.10
Machinery Running
€/ha	75	80	95
€/kg liveweight	0.14	0.15	0.20
Hired Labour
€/ha	27	22	14
€/kg liveweight	0.04	0.04	0.02
Depreciation
€/ha	91	88	98
€/kg liveweight	0.17	0.17	0.19
Interest
€/ha	29	32	28
€/kg liveweight	0.05	0.12	0.12

Comparing Cattle Systems

The main points from table 7 below are:

• Suckler to beef farms tend to have larger farms, carry more stock and produce more kilograms of liveweight per hectare.
• Higher output value on the suckler to beef system is maintained right through to overall profit per hectare.
• As expected the non-breeding farms have captured the highest premia. The high premia take on the suckler to weanling farms may be a consequence of involvement in Reps and capturing more Compensatory Allowance Scheme payments.
• Variable costs are broadly similar across all three systems. With fixed costs tending to be higher in the suckling systems.
• Both breeding systems have delivered a higher gross margin(excl.Premia) than the non-breeding farms. At €215/ha on the weanling system there is scope for improved efficiency on these farms.
• None of the three systems were able to maintain all their premia as profit with the average non-breeding farm only retaining 57%.

TABLE 7- Profit Monitor 2003 – Per Hectare Analysis Breakdown of 3 Cattle Systems

	Suckling to Beef (n=75)	Suckling to Wnl (n=33)	Non Breeding (n=68)
Physical
Farm Size ha	58	48	45
Stocking Rate LU/Ha	1.72	1.66	1.58
Liveweight Produced Kg/Ha	604	447	595
Financial €/ha
Output Value	1522	1408	1361
Of Which Premia	727	731	895
Variable Costs	472	463	449
Gross Margin Excl Premia	323	215	17
Fixed Costs	465	449	421
Profit Incl. Premia	585	497	491
Premia Retained	78%	68%	57%

Profit Monitor Sheep 2003

Profit Monitor 2003 – Per Hectare Analysis (n = 41)

	Top 1/3	Average	Bottom 1/3
Physical
Farm Size ha	24	40	55
Number ewes to ram/ha	10.9	9	7.8
Stocking Rate LU/Ha	2.4	1.85	1.63
Financial €/ha
Output Value	1517	1115	799
Of Which Premia	349	330	336
Variable Costs	440	364	328
Gross Margin Excl Premia	727	420	136
Fixed Costs	394	353	342
Profit Incl. Premia	684	398	131
Premia Retained as Profit	198%	121%	35%

Profit Monitor 2003 – Per Ewe to ram Analysis (n = 41)

	Top 1/3	Average	Bottom 1/3
Physical
Number lambs reared per ewe to ram	1.55	1.30	0.95
Financial €/ewe
Output Value	144	127	106
Of Which Premia	35	40	45
Variable Costs	41	42	45
Gross Margin Excl Premia	68	45	16
Fixed Costs	38	41	46
Profit Incl. Premia	66	44	15

Preliminary analysis of 41 flocks shows that:

• Output (in terms of stocking rate and number lambs reared per ewe) are the major determinants of profitability per hectare
• The top third had
• higher stocking rate
• higher weaning rate
• lower variable costs
• lower fixed costs
• About 50% of the difference in output between the top and bottom third was due a higher stocking rate. A further 40% was due to an increase in the number of lambs reared.
• The top group made a profit of €30/ ewe (excluding premia), while the bottom group made a loss of €30/ewe. Basically, premia contributed €30/ewe to flock maintenance in the bottom group.
• There was an increase in gross margin of about €8 per ewe for each 0.1 increase in rearing rate.

Acknowledgement

Teagasc extends thanks all those who were involved in the collection and inputting of all the data which was used in compiling this report on the Drystock Profit Monitor farms for 2003.

A special word of thanks to all the drystock farms for their help and co-operation in making available both the financial and physical information needed; to advisers and technicians for collecting much of the data; to Mr. Kevin Connolly, financial management specialist for his overall co-ordination of the ePM system and the drystock specialist team.

As we face into a complete new regime in drystock farming more emphasis will now be focused on the technical aspects of farming. Attaining high levels of efficiency, maximising the value of farm output and focusing on cost control will be the only way of improving total farm income.

The eProfit Monitor will prove an invaluable tool in examining your farm business. The future of your farm business will rest on being able to make informed decisions.