Management Matters: Cautious optimism, despite higher costs
A lot can happen in three years – and Martin Howlett has made some significant changes to his business over that time. But what is perhaps more surprising is how much has remained the same.
In 2005 commodity prices were on the floor and the Howlett family were facing some dramatic management decisions to keep the business running. Prices may have risen since then, but profitability is still under threat due to steep cost increases, and Mr Howlett is still struggling to find a sustainable way forward.
“Three years ago we were running to stand still. We were trying to do more and expand, but ended up working harder for no return. Now we’re doing much the same laying more money out to be no better off.”
With beef prices at about 178p/kg, Mr Howlett decided to stop fattening Continental-cross cattle in 2005/06, and concentrate instead on specialist Welsh Black beef which he could sell to local butcher Philip Warren. He increased numbers from 25 to 100 head, and also increased his suckler cow herd from 30 to 50, with the intention of selling his Aberdeen Angus-cross stores for finishing into Waitrose‘s Dovecote Park scheme.
However, an outbreak of TB on the farm put paid to that idea, with all the cattle being put under movement restrictions from October 2006 to date. Instead, Mr Howlett is finishing the offspring himself, as well as buying in Welsh Black suckled calves each autumn. “Our plans for expansion have been checked by TB without a doubt. We’ve had a lot of extra cost and hassle and have felt pretty demoralised about going forward.”
Restructuring for the future
But strive forward he has, re-evaluating his system at every opportunity to ensure maximum success. Mr Howlett has just finished restructuring his suckler herd again, selling seven pre-1996 cows into the Older Cattle Disposal Scheme before its closure in December, and keeping back heifers as replacements. “That ensures that we’ll always have a proportion of calves coming forward to safeguard ourselves.”
Those calves may be essential if the price and availability of suckled calves at this autumn’s sales prevent Mr Howlett from securing his usual quota to fatten. “Suckled calf numbers have dropped sharply. Hallworthy market used to trade 10,000 before BSE, last year it had fallen to only 3000, thus reducing the potential for us to buy.”
However, TB is one cause of the drop in numbers forward at auction, and Mr Howlett could potentially buy privately from TB-restricted farms under licence. The next TB test is scheduled for 27 October, when he will discover whether the farm is still under restriction or will finally be declared TB-free.
Last season Mr Howlett bought suckled calves at £300/head, and sold his fat cattle at £600/head. Now, finished prices have risen to over £800/head, or 275p/kg deadweight, but with input costs soaring by nearly 50% he can still only justify a modest increase for each calf. “Ironically calves may also be smaller because of the wet summer, so could struggle to finish before they are 30 months old.”
Despite the lifting of the Over Thirty Months Scheme, there is still a two-tier market, with OTM cattle fetching about 50p/kg dw less than younger animals – a difference of £150/head. “Being pressurised to finish animals before 30 months and restricting our potential to produce quality traditional beef, which take longer to finish than Continental Crosses, is no longer justified in the current climate,” says Mr Howlett.
The potential to re-enter the Continental-cross market, should it prove profitable, remains an option, he adds. “The question is, do we go back to doing that with the quicker turnaround time, or stick with the Welsh Blacks and extensify to reduce our costs?”
Higher costs
One of the major cost concerns is fertiliser, which has risen from £150/t to £300/t plus in a single season. “That was a huge shock, and will have a massive impact next spring when held-over stocks run out.” For the first time ever, Mr Howlett bought his specialist P&K fertiliser early to store over the winter, and it has proven the right thing to do, as prices have risen from an average of £400/t then to £700/t now.
Forage variable costs have therefore risen from £86/ha (£35/acre) in 2005 to around £198/ha (£80/acre) today. “At those levels, the big question for the future is whether we use any fertiliser on our grassland at all.”
In 2007 Mr Howlett decided to put all his marginal land in the Higher Level Stewardship scheme, and enhance it for the benefit of the environment and his Tipi camping business. The idea was to push the more productive land to maximise output. “But how can we afford to push it when the return isn’t there?” Instead, he may further extensify the specialist beef production to keep costs to a minimum.
“This spring we felt there was a real air of confidence, but the combination of a dreadful summer and late harvest, soaring input costs and the global credit crunch is making us very cautious,” he says.
“The last thing we need is for the multiples to start putting pressure on the price of beef and lamb – we just cannot run with it. If prices start dropping again it will seriously make many of us have a hard look at whether we can continue production.”
Mr Howlett has already almost halved his sheep numbers to a more manageable 250 head, and brought his finishing time forward to make the most of the early market premiums. “Although we are making a gross margin of £18/ewe, we may have to ask the question whether they will have to go to free-up land for more extensive beef production, because the sheep take up a fair few acres of grass.”
Self-sufficiency has always been important at Deer Park Farm, and Mr Howlett has slightly increased his cereals acreage to feed his stock over the winter. This year’s appalling summer and late harvest meant yields were about 1.2t/ha (0.5t/acre) down across the board, although silage yields were excellent. “The 1000t store is nearly full and still awaiting forage maize – although as yet we don’t know what the quality will be like.”
Contracting prices have also soared, to £126/ha (£51/acre), pushing the cost of grass silage to £18/t. “That is a frightening increase and we have to cost it into the beef ration realistically.” Mr Howlett is considering bringing the silage making back in-hand, by collaborating with neighbouring farmers to buy the required machinery, to bring costs back down.
Thankfully, straw yields were reasonable, and Mr Howlett bought in an extra two articulated loads of wheat straw early at £65/t delivered. He has also decided to use his miscanthus as extra bedding – putting his idea of a miscanthus-fired boiler for the farmhouse on the back burner for now. “It is still in the pipeline, but all investment is on hold at the moment because of the difficulty of servicing any finance over and above the HLS capital outlay.”
Looking ahead
Longer term, Mr Howlett is still optimistic about the future – although he is solidly realistic about the present. “It is a great pity that the big processor retailers did not support the industry a couple of years ago, when beef prices fell to 160p/kg. If they had not been so opportunistic, and had sent the right signals, then we would not be in the situation we are in today, with a shortage of beef and lamb and a loss of critical mass,” he says.
“However, since the export market restarted we are not so much under the thumb of the supermarkets, and there is still a need to increase global food production to meet rising demand. My philosophy hasn’t changed – we need to always pay attention to detail and continually question everything we do, and do it as well as we can.”
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