Profitability reduces on DairyBeef 500 Demonstration farms in 2022

The Teagasc DairyBeef 500 Demonstration farms will be having mixed emotions about their eProfit Monitor results for 2022. Alan Dillon, DairyBeef 500 Campaign Co-ordinator, explains why while outlining the financial performance for 2022 in this article.

The massive increase in input costs that occurred last year could not have been predicted 12 months or even 12 weeks prior to the start of the year, but in any case the year's performance could be summarised by 'could have been worse'.

Fertiliser prices rose by 2.5-3 times the price paid in 2021 for products such as 18-6-12 , protected urea and 10-10-20. Meal price, from the middle of the year onwards, increased by 30% and remained very high into 2023. Other inputs such as diesel, polythene, sprays and contractor costs spiralled also, but the meal and the fertiliser was where the biggest pinch was felt.

The one saving grace in 2022 was that beef prices finally rose to the fabled €5/kg. And, for most parts of the country, the weather was largely favourable, apart from a late summer drought in the south of the country.

An interesting point on the demonstration farms is that many have moved to a much more efficient early-slaughter system. Slaughter age has reduced by 76 days over the previous three years and, in turn, this meant that a large quantity of cattle on these farms are killed between October and early February. As a result, it was 2023 before many of the demonstration farms saw €5/kg base on their cattle cheque for the first time.

Profitability reduced from €650/ha net profit (excluding all subsidies) to €516/ha in 2022. Some farmers experienced very large increases in meal bills. A large quantity of this increase came in the August to December period, when weanlings entered sheds and cattle were fed on early to target a 21-22 month age at slaughter. The 21% drop in profitability could have been much higher had beef prices not increased to the level they did in 2022. Data from Bord Bia shows that beef prices rose 18% in 2022 from €4.05/kg to €4.78/kg, on average. The issue the DairyBeef 500 demo farmers have to manage for 2023 is that while beef prices are at a much stronger footing currently, inputs such as meal are up over €100/t on the same period last year. Milk replacer is up around €5-10 per bag, while fertiliser started at higher prices than last year but appear to have eased again. All in all, the DairyBeef 500 farmers will need every extra cent of beef price increases to maintain profit levels.

Table 1: Physical and financial performance of the DairyBeef 500 group in 2021 and 2022

There was a massive variation between the demonstration farms, with some achieving little over break even, while the top performer was Aidan Maguire with a net profit of €1250/ha.

The characteristics of the farmers that had profits north of €500/ha were: having a large quantity of the animal's diet consisting of grazed grass and grass silage; good herd health plans, including vaccination policies against pneumonia; and attention to detail in the rearing phase, which takes into account the transition phase to grass from milk.

A notable increase occurred in fixed costs in 2022. This was in part from farmers investing extra cash in areas that had been neglected over the previous low beef price years, such as: fencing; roadways; machinery repairs; and labour saving equipment, such as handling units and calf feeders. There were a number of the farms with fixed costs close to or in excess of €1,000/ha, meaning they need a gross margin of close to €2,000/ha to achieve an industrial wage of €40,000 from 40ha of good land. While fixed costs need to be monitored and controlled, it is important to continually invest in fixed costs to maintain the farm and future proof it against upcoming cross compliance regulations on nutrient management. Also a number of the demonstration farms are working off farm, meaning time on farm is limited and anything that reduced the number of weekly hours worked on farm would be welcome and worth any extra increase in fixed costs if it streamlined the farm operation.

High output systems

From the figures above, it can be seen that on average the stocking rates on the farm is quite high at 2.3 LU/ha. In any beef system, a high level of beef output is required to leave a high enough gross margin to cover fixed costs and leave a substantial net margin for farmers before subsidies. The demonstration farms in this programme are consistently achieving 1,300-1,400kg of live weight per ha, which can deliver net margins north of €500/ha. Efficient farms that are stocked at 1.0-1.3 LU/ha typically generate enough of a gross margin to cover fixed costs only and allow a farmer to keep his direct payments.

2023 onwards

The input cost hike in 2022 shocked a number of farmers in terms of the effects it has on cashflow and how it wiped out any gains made in terms of rising beef prices. It has put farmers thinking as to what steps to take to reduce input cost exposure in the years ahead.

Our demo farms have taken action in the form of: planting red clover silage, which requires zero chemical nitrogen; multi-species swards, which may help our farmers in dry spells in the south of the country; selecting early-maturing beef stock that require less meal inputs than Friesian bred cattle or continentals; and also to address the simple and obvious deficiencies on the farm in terms of lime applications, vaccination of calves to avoid set backs, increasing the number of paddocks and ensuring all silage harvested is of top quality. High commodity prices will come and go, but efficiencies made in terms of cost cutting on farm inputs can have a real impact in both high and low beef price times.

The Teagasc DairyBeef500 team wish to acknowledge the contributions of MSD, Volac, Corteva, Munster Bovine, Liffey Mills and Drummonds to the campaign.

Also read: Upcoming DairyBeef 500 Conference