Red meat margins still under pressure

Incomes for English beef and sheep producers have improved considerably over the past year, but many farmers are still struggling to make a profit, according to EBLEX.

Its latest Business Pointers report, launched at Tuesday’s (20 October) annual conference, found that while outputs had generally improved across all nine beef and sheep enterprises studied, higher costs wiped out much of the gain.

The average lowland suckler herd for example, saw calf output increase from £278/cow in 2007/08 to £340/cow on the back of better market prices, but total costs – principally concentrate feed and fertiliser – increased from £557 to £599/cow. This resulted in a slight improvement in net margin from -£278 to -£259/cow after non-cash costs (unpaid family labour, rental value of owned land etc), excluding the single payment. The situation was better for the top third of producers, but they still made a loss of -£107/cow, up £40/cow on 2007/08.

The only producer groups to record a positive net margin for the year-ended 31 March 2009 were the top-third of extensive and intensive cattle finishers (£49/cow and £137/cow respectively), plus store lamb finishers (£2/head for average producers and £15/head for the top third).

“Most average producers still made a negative net margin, but there was a general improvement on last year so things are moving in the right direction,” said EBLEX economics and policy manager, Mark Topliff. “I think we’ll see margins improve again this year as costs have come back a bit and prices are still fairly strong.”

The best producers made the most of higher prices, but the main driver of profitability was a combination of good physical performance and cost control, he added.

Fixed costs, especially labour and machinery, remained one area for improvement across all groups. A survey of 80 producers found that half had tried to reduce the labour requirement of their business over the last three years, with 25% opting to use contractors, 22% investing in better facilities and 19% had stopped subsidiary milking enterprises to focus on livestock production.

Working more closely with end-users was also an important part of maximising margins, Anglo Beef Processors‘ Stuart Roberts said. “Confidence needs to improve in the beef sector and we’re looking at all aspects of how we can help in that; whether that’s forward pricing or by working together more.”

He was concerned that heifer slaughter numbers were up 6% so far this year, indicating producers were cashing-in on prices rather than reinvesting. “We don’t want heifers going into the food chain when they should be going to produce future generations of cattle,” he said. “Processors and farmers have got to work closer together to address this.”