BEEF enterprises growing-out young stock continue to provide the best returns under New South Wales conditions, a long-running gross margins calculation carried out again in April this year has shown.

Todd Andrew speaking at at earlier Wagyu conference

NSWDPI Beef Development officer Todd Andrews in April carried out gross margin calculations on five different cattle production models:

• Inland store weaners
• North coast weaners
• 0-2 tooth feeder steer production
• Backgrounding straightbred steers
• Jap ox/Grassfed MSA production.

The latest calculations add to a long-term series in beef enterprise gross margins tracing back as far as 1997 – numbering 19 in total – providing a valuable performance record.

Recognising that livestock pricing has shifted further in the past two or three months, Mr Andrews said that for consistency, calculations were mostly compiled in April each year, because time of year can have an impact on returns, especially for weaners.

A standardised set of saleyards and NLRS data is used to calculate livestock pricing. Inland weaners, for example, use Dubbo and Gunnedah, while Casino, Grafton and Maitland are used for coastal weaners.

The series was originally established by respected former NSW DPI staffer David Llewellyn, and since 2013 continues today under the stewardship of Dr Andrews.

Note in the table below (click on image to enlarge) that the gross margins were calculated every year or two in the early stages, but the more recent updates have been between two and four years apart. It should be pointed out that those inconsistent time gaps are not accurately reflected in the y axis of the graph.

The extreme livestock price period seen last year and the year before was deliberately overlooked, to avoid misleading future comparisons.

As can be seen on the long-term trend graph published above, gross margins started to really take off around 2015, and have remained relatively high since. The drought impact of 2019 can be clearly seen.

Click on table for a larger view

Dr Andrews told Beef Central that while the calculations were based on typical NSW production circumstances, they had application more broadly across the eastern Australian beef industry.

Asked what the main purpose of the data was, he said it was both producers themselves as well as advisors and others working with producers – who would access the spreadsheets to tweak them to work out ‘what was possible” in a given enterprise.

It obviously also has value in looking at long-term trends.

Rising production costs

Between the two most recent calculations in 2019 and 2023, although input costs including herd health and pasture costs had gone up by an average of 70 percent, gross margins had still increased by 20pc.

“As everybody is aware, there were record prices paid for weaners during the drought, and this has probably encouraged producers to shift their enterprise that way,” Dr Andrews said.

The gross margin results clearly showed that the best returns are still with those enterprises that grow out young stock, including backgrounding weaner steers and feeder steer production using a self-replacing herd.

Compared with 2019, returns for most enterprises by April this year had increased, with the exception of feeder steer production (grey line).

This reflected the dramatically higher cost of fertilisers and other inputs required to achieve good weightgains, as well as higher purchase prices for weaners, compared with feedlot entry prices, Dr Andrews said.

“And during the drought, although margins for growing out weaners to heavier weights were smaller per head, many operations were able to generate excellent returns per hectare because good seasons allowed them to run higher stocking rates, while still retaining good weight gains.”

Importantly the seasons, as La Ninas, were predicted to be good and so backgrounders were able to buy weaners in good numbers with confidence, even at higher prices.

Inbuilt flexibility

“As well as higher returns per DSE, growout operations (ie feeder steer production and backgrounding weaners) also have higher in-built flexibility, as they are a running a smaller proportion of cows. In a weaner breeding enterprise, cows typically consume around 75pc of the feed, and so feed demand is fairly constant and therefore harder to manage in drought,” he said.

“While the large stock sell-off in recent months was likely in part due to well publicised and well understood El Nino forecasts, on the other hand, many producers will be running ‘expensive’ cattle that can make it difficult to sell those stock when conditions might dictate that would be the best decision.”

Producers could improve the utilisation of existing dry feed and maintain cow weights with urea-based supplements because if conditions deteriorate, then the cost of energy and true protein supplements such as white cottonseed, DDG and protein meals would be daunting for many producers, even though they have made good returns since 2020.

Compared with previous analyses in the gross margin series, purebred feeder steer production from self-replacing herds was not as strong, Mr Andrews said. This was partly due to the lower prices being received for the weaner heifers.

Industry shift away from producing ‘butcher’s steers’

The ‘butcher shop’ or domestic market for lighter carcases around 160-220kg, which used to be a reasonably common production model in parts of NSW, was now much less common. For this reason gross margins for this enterprise type are no longer calculated.

The segment was now virtually a ‘niche market’, Dr Andrews said, confined to selected regions and their saleyards.

“Producers have looked to add weight to carcases to take advantage of excellent pasture conditions, and extract maximum value from expensive purchased weaners as well as taking advantage of increasing genetic potential for growth and carcase weight,” he said.

Processors had also shifted toward a premium for heavier carcases as they look to maximise the value of labour units required to process each beast.

• The full gross margin budgets for each business enterprise models and how they are calculated are available on the NSWDPI website – 
• Todd Andrews is happy to share the gross margin Excel spreadsheets with those who are interested. Send him an email here to discuss   todd.andrews@dpi.nsw.gov.au