Major northern Australian beef producer S. Kidman & Co has reported an after tax profit of $20.4 million for the 2010-11 financial year, as a direct result of the strong seasonal conditions and some property disposal.

That’s the best profit result seen since 2001, when a big season coincided with an exchange rate at about US55c – roughly half where it sits today.

The 2010-11 result is a big improvement on the earlier sequence of eight or nine dry years, where after-tax profits typically sat in the $5m or less range. The year before last recorded a profit of just $2.5m, after tax.

Kidman managing director, Greg Campbell, described the 1010-11 result as ‘solid’ rather than ‘buoyant’, as the current high A$ value had impacted on revenue, despite the exceptional weights seen in slaughter cattle.

There were also several underlying contributors to the result. One was the sale of 12,000sq km Quinyambie Station in SA’s north-eastern corner near Broken Hill, sold not to reduce debt, but to allocate capital more efficiently.

A second parcel of land, a subdivided section off Banka Banka in the NT, was sold to the Indigenous Land Corporation as part of an agreement that removed a land claim over adjoining Brunchilly. It also included a tourism facility on Banka Banka which was surplus to Kidman requirements.

The block will create a viable pastoral lease for local aboriginal people of about 1400sq km, capable of running 4000 cattle. The Banka Banka sale was at cost, meaning it did not contribute anything to last year’s Kidman profit.     

Also contributing to the $20.4m profit last year was a herd valuation increase, with closing stock numbers being the highest in more than 50 years, at 206,000 head. There was also a weight consideration, given the exceptional season experienced over the past 12 months. The company also bought about 19,000 trader steers last year to utilise the feed resource.

Fire has big impact

While long-term average calvings across the company are around 70pc, last year and the year before were well above that, being in the high 70s, also contributing to herd growth.

Seasonal outlook-wise, there has already been a few early storms recorded, bringing a start to the 2011-12 season. But this storm activity has also bought lightning, which has seen around 10pc of Kidman’s entire land resource burnt-out in the past few weeks, despite a high level of preparation during winter.

The fire impact has been particularly severe in the channel country, where 30pc of Nappa Merrie and 25pc each of Durham Downs and Naryilco has been lost.

This pasture loss might have some impact on outside purchase of stock in coming months, Mr Campbell said.

“In the absence of the fires, we would have been likely to have purchased another 8000-10,000 trader steers, but we will go more cautiously now, waiting to see what sort of rain we get and how the country responds first. Given a good summer seasonal forecast in front of us, we are more likely to be back in the market for grower cattle early next year,” he said.

Kidman still has a way to go to complete its 2011 calendar year grassfed channel country bullock turnoff, which is expected to continue well into November.

Nearly all of those cattle are coming east, back into Teys, JBS and Nippon plants in southeast Queensland. The exception is remaining turnoff from Anna Creek and Macumba in SA’s northeast, which is heading mostly to Teys Naracoorte.

Carcase weights this year continue to track 30+kg above longer-term company averages, but just a fraction below last year. For the financial year just reported, average bullock carcase weight was 359kg, among the highest ever recorded for cattle of that young age.   

A fortnight ago, a pen of red Brahman bullocks bred at Van Rook in the Gulf country and finished on Durham Downs won a major championship in the Roma Beef Bonanza show sale, against buffel-grass finished bullocks bred on much softer country. 

Kidman board chairman John Crosby said the 2010-11 result was very pleasing, given the earlier sequence of nearly a decade of poor seasons.

“The result is assisted by the production benefits of two consecutive good seasons,” he said.

“Our staff have had to work tirelessly during the difficult years and have placed us in a good position to reap the benefits of the last two years, during which time they have had to meet the challenge of flood isolation, closed roads and difficult mustering conditions” he said.

Carbon tax influence on cattle decisions

Looking further ahead, Mr Campbell said there was no higher order human demand than food, and subject to the vagaries of government policy and containing costs, then the Kidman business should continue to be sustainable in the centuries ahead.

Questioned by Beef Central about the company’s cautious approach earlier this year to the prospect of a carbon tax introduction, he said at one point there was lack of clarity about the timing or potential impact of a carbon tax on freight and meatworks costs, that had influenced cattle purchase decisions.

Essentially, Kidman was cautious about paying a certain amount for grower cattle if it meant that their later value would be negatively impacted by carbon tax burdens.

“That has since been clarified, to a degree,” he said. “Freight won’t be taxed until 2014, and we know that among the bigger processors we deal with that will pay the direct tax on emissions, the carbon cost per head will fall in the $5 to $8/head range. We have a little more certainty over that now that the carbon price has been announced.”

“If it had added another $20 a head in freight, and say, $10 a head or more on processor costs, that would cut deeply into our margins, and we would have to be careful about such costs when valuing replacement cattle. But that’s not to say that the current level of processing carbon tax cost will not be a burden,” he said.

“If left to our own devices, I think we have a sustainable, viable industry, but we are continually being burdened with ‘sovereign risk’ and regulatory costs being imposed on us,” Mr Campbell said.

“But it’s a finely-poised game. If a northern producer was making a comfortable $100 profit on a beast, but suddenly makes $70 due to carbon tax, it might not sound like much on the cost of a $1000 beast, but when that same thinking is applied to a feedlot, with associated overheads and operating costs, it may suddenly be no longer viable.”

Mr Campbell agreed with the suggestion that 2011 had probably represented the worst-ever year for additional Government regulatory costs and burdens, either direct or indirect, on extensive grazing.

“As well as carbon, there are higher meat inspection costs, further regulation under the Environmental Biodiversity Conservation Act, Wild Rivers legislation in the Channel Country, labour reforms, nationalisation of Occupational Health & Safety laws and the impact from the political intervention into trade in Indonesia.”

“All of these have to varying extents, added to cost burdens. Larger businesses now need an administration team just to keep up with it.”