Beef Focus special feature

Scrutinise fixed costs for more profitable production

August 13, 2010

MANY beef units are failing to take full account of the impact of fixed costs and, therefore, missing an opportunity to improve profitability, says KW nutritionist Richard Wynn.

“Eblex Business Pointers for intensive beef finishing show the average unit spending 48p per day on fixed costs,” he says. “That equates to around 38p for every kg of liveweight gain.

“Yet the top third producers achieve fixed costs as low as 38p per day. Not only are overall fixed costs 20 per cent lower on a daily basis, but the increased beef output achieved by these units creates further savings, so on a liveweight gain basis their fixed costs are more than 30 per cent lower at just 27p per kg.

The Eblex figures (see table) show what can best be considered the ‘overheads’ of the unit. Dr Wynn argues for better allocation of fixed costs and says to scrutinise figures to see what opportunity exist for reductions and greater efficiencies.

“Ideally, fixed costs should be relative to the numbers of cattle on each unit, so make sure no particular enterprise or part of the operation is taking up more resources than it should,” he says. “But there does still come a point where fixed costs can’t be reduced any further.

“Once you’re at that stage, the next step is to concentrate on reducing fixed costs per kg liveweight gain by improving output. Increasing output by just 10 per cent could cut fixed costs for the average intensive beef producer by 4p per kg LWG, boosting margins by up to £10-15 per head.”

Reducing finishing time by growing cattle faster is one option, says Dr Wynn, spreading fixed costs across a greater output by finishing more cattle per year. And the key to that is better feeding.

“In most cases, more effective feeding doesn’t cost any extra on a per kg liveweight gain basis, and there are other advantages too. By growing cattle faster and finishing them at a younger age, overall maintenance nutrient requirements are reduced, while also avoiding the times of poorest feed conversion efficiency, which occur as the animal gets older.

“Unless you’re getting a specific premium for slow-grown beef, then as long as the right carcase grade and size can be achieved, and feed costs kept under control, there’s no reason not to push cattle to grow faster.”

Typical fixed costs for intensive beef production
	Fixed costs
	Average		Top third
	p/day	p/kg LWG	p/day	p/kg LWG
Paid labour	15.5	12.2	16.2	11.6
Power & machinery repairs	9.2	7.2	6.5	4.7
Contractor charges	2.8	2.2	0.8	0.6
Administration	3.1	2.4	2.6	1.9
Property charges	6.2	4.9	5.5	4.0
Land costs (e.g. rent)	4.5	3.5	1.8	1.3
Machinery depreciation
and fixtures	6.9	5.5	4.5	3.2
Total	48.2	37.9	37.9	27.3
Source: Eblex