Cost of production lifts with surge in cattle prices – ABARES

The Australian Bureau of Agricultural and Resource Economics (ABARES) have recently released a report, commissioned by MLA, which allows producers to compare the cost of production of their cattle herd or sheep flock with the industry generally, and possibly identify opportunities for improvements within their business.

The report presents cost of production estimates for beef cattle and sheep producers for the three years ending 2014-15, based on data that ABARES collects on broadacre farms through its Australian Agricultural and Grazing Industries Survey (AAGIS).

For the purpose of this report, farm businesses with fewer than 100 head of beef cattle (2% of the national beef cattle herd) and those that finish more than 5,000 cattle on grain have been excluded.

Over the three years ending 2014-15, the average total costs of beef production in northern and southern Australia were similar, at 175¢/kg and 174¢/kg live weight, respectively; however the composition of costs differed between the regions.  Finance costs, fodder and freight accounted for a larger share in northern Australia, while fertiliser and unpaid family and partner labour comprised a greater proportion in the south.

The on-farm cost of beef production (on a per kg live weight basis) increased between 2013-14 and 2014-15, as the average prices for beef cattle lifted 25% and boosted cash flow. This saw producers in northern and southern Australia increase expenditure across several inputs in 2014-15. For example, in 2014-15, expenditure on repairs and maintenance was up 18% year-on-year in both northern and southern Australia, while fertiliser expenditure rose 36% in southern Australia.

The surge in cattle prices resulted in expenditure on cattle purchases increasing by 20% in southern Australia, and by more than 35% in northern Australia. Additionally, the dry seasonal conditions across northern Australia during 2013-14 and 2014-15 lead to the outlay for fodder rising 65% between 2012-13 and 2014-15.

The report found that the total costs of production (per kg) across the country declined as herd size increased. Therefore, the operating margin (receipts per kg less costs of production) of beef production increased as the scale of beef production increased. Generally, small beef farms (less than 400 beef cattle) covered their cash operating costs, but the majority did not cover capital depreciation or the value of unpaid family and partner labour.

The cost of production for sheep producers will be outlined later this week.