How to be in the top third of livestock farmers
The top third of beef and lamb producers consistently outperform the rest of the industry in terms of profitability – but what is it that sets them aside Olivia Cooper finds out.
The gap between the most profitable livestock producers and their counterparts at the other end of the scale has never been greater. So what can producers learn from those at the top?
Eblex’s annual Stocktake report shows the top third of lowland sheep farmers made a net margin (after inputed costs for rent and unpaid labour, but before single farm payment) of £18.34 a ewe in 2012-13. That is compared with an average loss of £12.65. Higher output accounted for 37% of that difference, with lower fixed costs making up 57% of the gap and lower variable costs the remainder.
See also: How top beef producers get ahead
“The top third of farmers did have bigger flocks, with 772 ewes against an average of 586,” says Carol Davies, senior analyst at Eblex. However, they also had higher production, with 157 lambs reared a 100 ewes put to the ram, compared with an average of 145.
Suckler tips
- Room for improvement at top as well as in average herds
- Tighten calving patterns to make better use of labour and help with marketing
- Select replacements from earliest calving animals – they have best natural fertility
“The top third of producers had more lambs at scanning, more born alive, and more reared,” says Mrs Davies. “That has to be down to management – making sure rams are fertile, flushing ewes on good grass and keeping a closer eye on health and body condition.”
Top producers generally make more use of estimated breeding values, showing through in lamb birthweights, growth rates and carcass quality. Daily liveweight gains for the top third averaged 0.28kg compared with a mean of 0.26kg, so the best producers finished lambs more quickly and could target the early, premium, market.
“Concentrate use is lower, but the top third spend more on feed, so are looking more at quality than quantity,” says Mrs Davies. They also spent more on home-grown forage in preference to bought-in material, helping keep costs down. Veterinary and medicine costs were also lower among the top third, probably due to more targeted worming regimes.
Top third producers
- Have larger flocks – 772
ewes compared with an average of 586
- Have higher scanning rates and keep more lambs alive
- Are more likely to use EBVs
- Achieve higher daily liveweight gains
- Use less concentrate feed and less unpaid labour
- Keep machinery and depreciation costs down, usually by more, or better, use of contractors
Perhaps surprisingly, stocking rates among top third producers were significantly below average, at 0.77 livestock units a hectare, compared with 1.04 livestock units a hectare. “That shows that stocking rates are not a driver of profits – perhaps the top third are making use of low-cost grazing opportunities, and have more land in stewardship schemes [the income from which is not included in the figures].”
Cost control
Rent and imputed rent costs were much lower in the top third, at £12.99 a ewe, compared with an average of £18.56 – perhaps a reflection of cheaper grazing arrangements, says Mrs Davies. Labour was the biggest fixed cost, at £32.37 a ewe on average, including imputed costs for unpaid family labour. The top third managed to trim that to just £24.33. “The range in labour costs was horrific – the top third made less use of unpaid labour – if you’re paying someone to do a job perhaps you make the best use of them that you can.”
The top third also made greater use of silage contractors, helping limit machinery and depreciation costs. It was a similar story across every enterprise, including less favoured area sheep and beef producers, beef finishers and suckler producers.
“The biggest driver of profitability across the board is not productivity, it’s management and control of costs, particularly fixed costs. A lot of people concentrate on output and variable costs as an easier fix – but the big gains are in labour, rent and machinery.”
The difference between the output of average lowland suckler cow producers, for example, and the top third, was £65 a head. The gap in variable costs was less than £7 a head yet the difference in fixed costs was £108 a head. “The physical performance of suckler herds is pretty similar – the difference is all about costs,” says Mrs Davies. “But there is no silver bullet; it’s usually a combination of all sorts of little efficiencies that can be made through close attention to detail.”
Even the best herds had huge potential to improve productivity, she added. “Only about 86% of calves were born alive in both average and the top third of herds – well below the Eblex target of 95%.
Top Tips
- Fixed costs offer greatest opportunities to save
- Attention to financial and physical detail is key
- Benchmark against other producers
- Step back from the farm and set targets
- Use the best genetics possible
- Simplify systems to reduce labour
- Make better use of grass
“There is massive potential to improve that through better fertility.” Cows should be calved over less than 12 weeks, with replacements kept from the earliest calvers, as they naturally have the highest fertility, adds Mrs Davies. “If you have a tighter calving window, the calves can be kept in more even batches, cutting down on labour and feed costs.”
Productivity and calf weights were similar across the board, with the most noticeable difference in price achieved a kilo. “The top third of producers are producing better quality calves – perhaps through better genetics – which is reflected in a £40-50 higher price at weaning.”
Among beef finishers, the importance of costs over productivity was even more marked, with the top third of producers’ physical performance actually poorer than the average. However, by buying cheaper, raising stocking rates and selling at slightly higher prices, they secured £117 a head more output.
“The top third are using better rations to achieve the same performance from less,” says Mrs Davies. “They have better grassland management, which enables them to have higher stocking rates. That, in turn, means lower land rents. They are also achieving their target weights and grades, so have to sell fewer animals as stores.”
Labour costs
The big difference was labour. “The top third have more efficient processes, and significantly cheaper machinery and contracting costs.” Producers should look at how to save working time and consider contractors rather than investing in machinery. However, they should avoid using contractors and keeping machinery for a rainy day – a costly mistake. There is no one answer for every farm – producers have to make the most efficient use of their system, says Robert Logan, livestock and business consultant at SAC. “Average figures hide a wide range – there are some farmers who simply shouldn’t be finishing lambs, for example. If good pasture is limited, they should wean early and prioritise land to get lambs growing early and sold as stores.” Others could make better use of grass to finish lambs cheaply, rather than pushing them with concentrates for early markets.
“But there is no silver bullet; it’s usually a combination of all sorts of little efficiencies that can be made through close attention to detail.”Carol Davies, senior analyst at Eblex
Improving livestock genetics was also vital. “It’s important to cull hard to get rid of poor ewes. You want good maternal ewes and to use the tup for muscle. R grades are fine; if you chase U grades you will have more lambing problems and higher labour costs.”
Maximising farm efficiency was not just about cutting costs. “It’s about maximising output from those costs, and being resilient in a difficult year.”
Good relationships
Developing a good relationship with buyers was another common factor among top producers, says Mr Logan. “They’re talking to the processors regularly and drawing appropriate stock at the right time to make the grade.”
According to Kevin Edwards from the Farm Consultancy Group, the first step is to benchmark against others. “You need to know where you are before you can identify which areas to address. Is the problem one of productivity, or variable or fixed costs?
“Just because something has always been done that way doesn’t mean it’s right,” says Mr Edwards. “And sometimes you can’t address high costs because of rental agreements, so perhaps you should look at alternative production systems instead.”
However, cutting costs would always help improve resilience, so consider sharing labour and machinery and join a buying group to reduce input costs. Getting off the farm to examine other systems and speaking to experts would also help generate new ideas and targets.
“Often people think employing a farm business consultant is expensive – so perhaps get together with a group to spread the costs, and share advice,” says Mr Edwards. “To have a profitable farming business you’ve got to be a good stockman and a good businessman. But not everyone has business skills, so buy them in if necessary. And make the time to step back and take those management decisions – you’re not irreplaceable on the farm and it will be time well spent.”
| Lowland sheep producers (£ a ewe) | ||
|---|---|---|
| Avereage | Top third | |
| Output less replacement costs | 93.19 | 104.69 |
| Variable costs | 29.31 | 27.51 |
| Gross margin | 63.87 | 77.17 |
| Fixed costs | 76.52 | 58.84 |
| Net margin | -12.65 | 18.34 |
Source: Eblex |
||
| Lowland suckler producers (£ a head) | ||
|---|---|---|
| Average | Top third | |
| Output less replacement costs | 486.71 | 551.28 |
| Variable costs | 235.02 | 228.71 |
| Gross margin | 251.69 | 322.57 |
| Fixed costs | 488.41 | 380.86 |
| Net margin | -236.72 | -58.29 |
| Source: Eblex | ||
| Lowland beef finishers (£ a head) | ||
|---|---|---|
| Average | Top third | |
| Output less replacement costs | 515.92 | 622.91 |
| Variable costs | 256.02 | 214.45 |
| Gross margin | 259.90 | 408.46 |
| Fixed costs | 348.70 | 277.43 |
| Net margin | -88.81 | 131.03 |
| Source: Eblex | ||
Sion Williams, Selkirk: ‘Attention to detail helps margins’
Sion Williams, farm manager at Bowhill Estate, Selkirk, Scotland, runs 4,500 ewes and 440 suckler cows across 3,642ha of hill and in-bye land. Every enterprise has a target return on capital of 10%, and is benchmarked. In 2012, the hill sheep yielded a net margin of £5.05 a head against the QMS average loss of £18.76. The lowland sheep produced a net margin of £3.80 compared with an average loss of 75p, while the store cattle lost £168 a head against an average loss of £193.
Mr Williams has recently changed sheep breeds to boost productivity. Moving from Blackfaces on the hill and Mule cross-breeds lower down, he uses Aberdale and Aberfield genetics to improve carcass quality on wether lambs and boost lamb numbers from lower ground replacements. He has switched from Texel tups to New Zealand Primera for easier lambing and faster growth on grass.
“The Primera lambs finished 32 days quicker – and with the Aberdale mother you get good lambing percentages and a lamb that meets the market specification,” he says. The in-bye flock averages 181% live lambs a ewe, with the hill flock at 117%.
“On the low ground it’s lamb numbers that pay, not heavy carcasses. They finish at 183 days [151 for Primeras], while the Blackfaces finish at 281 days, with the Aberfield and Aberdales at 246.”
Mr Williams sells all lambs through Dunbia for Sainsbury’s, and is part of their development group.
He puts part of the farm’s success down to that relationship and attention to detail by the farm’s nine staff.
Pure Aberdeen Angus and Angus-cross Shorthorn sucklers calve in early April, with an Angus, Shorthorn or Charolais as a terminal sire. Weaned at six months, calves are sold as 12-month stores.
“We’re part of a high-health scheme and sell privately to regular buyers through a sealed-bid system. That way there are no commission or haulage fees, and if I don’t get the right price I don’t have to sell them.”
James Evans, Shropshire: ‘Cost cutting’s key to competition’
James Evans is also in the top third of both beef and sheep producers and won the 2012 Farmers Weekly Awards Beef Farmer of the Year title. His eureka moment was 14 years ago when he started contract farming with an accountant.
“When you have to show your figures to a third party and justify every decision you make, it really concentrates the mind,” he says.
Soon after, he decided to change breeds to reduce labour requirements, and now runs 300 Stabiliser suckler cows and 1,100 Lleyn-cross Highlander ewes across more than 800ha of grass and arable land in partnership with his brother.
Mr Evans, who is running the livestock enterprises with the equivalent of one-and-a-half full-time workers including himself, says: “We’re trying to keep it really simple and only get in labour when we need to,” he says.
Cows calve in spring and autumn to spread cashflow and labour. “We’ve just calved 160 cows, had 159 live calves and only had to assist two.”
To maximise productivity youngstock are now sent for finishing on a bed-and-breakfast basis elsewhere. “They benefit from economies of scale, and it takes the pressure off me so I can increase suckler numbers without putting up more buildings.” From nine to 14 months the cattle average 1.8-2kg of daily liveweight gain, costing £2.60/day.
Mr Evans has decided not to finish his lambs as the farm isn’t suitable, so he sells at weaning instead. “That allows me to carry more sheep – at the end of the day it’s not about profit a head, it’s about profit a herd or flock.” Better pasture management has also helped increase stocking rates, and a recent move to outdoor lambing has cut costs. “We fed 2t of concentrates to 1,100 ewes last year, and weaned 1.6 lambs a ewe across the flock.”
And his advice to other producers? “It takes a change of mindset, but spreading your overheads has a massive impact on profitability. Also, if we’re going to compete with the rest of the world we’ve got to reduce costs; it may not be popular but that’s the reality.”
John Hoskin, Dorset and Cornwall: ‘More ewes, less labour’
John Hoskin (pictured centre) farms in partnership with sons Mark (on the left) and Richard (right) in Dorset and Cornwall. They run 1,700 ewes, 60 suckler cows, 400 bull beef and 800 other beef cattle across 931ha of grass and arable land. He was the 2010 Farmers Weekly Awards Farmer of the Year and constantly strives to improve productivity with minimum cost and is comfortably within the top third of beef and sheep producers.
“We’re trying to manage more ewes with less labour and have culled really hard on lambing difficulties, foot problems and worm burdens,” he says. “It has made a significant difference; we only had to assist 1% lambing this year.” The introduction of New Zealand Suffolk genetics six years ago has also made a big difference. “One ram can serve up to 100 ewes, and they’re not as large-shouldered as British Suffolks – the Suffolk-cross Mule lambs grade at R3L and those put to a hybrid terminal sire grade at E, U and R.”
Mr Hoskin lambs 300 ewes over 21 days from mid-January to target the early market and spread cashflow and labour. He averages 165% live lambs a ewe, including ewe lambs, and has increased stocking rates to 12.5 ewes and lambs a hectare. All the lambs are sold to ABP, selected weekly, or more often, depending on demand. “We know that ABP wants an R3L lamb at 18-21kg so we run them through the race and handle them very often.”
The beef cattle also sell through ABP – and Mr Hoskin is losing £200 a head on Christmas-bought stores. “Last year we made £50-60 a head profit, and a bit more on the bulls, but prices have dropped 60p/kg since then.”
In a bid to cut costs, he continually assesses the ration, testing maize and grass silage monthly and shopping around for cheaper protein alternatives such as urea.
Suckler cows are outwintered on stubble turnips and calve for nine weeks from 1 April to meet grass growth. “We use high EBV bulls, and finish heifers at 18-21 months old with bulls on an intensive cereal ration to finish at 13-14 months old,” says Mr Hoskin.
So what advice does he have for farmers looking to improve profits? “Good genetics are always a sound investment. Look ahead all the time and adapt to change. We need to sit down and talk about what’s happening with the beef industry: If retailers want less beef I feel it’s better to cut production by 10% and make a profit than continue at 100% and make a loss.”