PRODUCERS have been urged to take opportunities to invest now to maintain future profit margins and business strength, with Rural Directions Consultant Simon Vogt saying taking these steps would help them to be well positioned in the event of any price corrections.
Mr Vogt, who will speak at the GROWING SA Conference on Friday, September 14, says “well-considered” investment of current profits is the key to long term success and sustainability.
“It’s important to recognise that low risk and high margin agriculture is possible,” he said.
“Recent results from a national project, funded by Meat & Livestock Australia, the Profitable Integration of Cropping and Livestock, showed that the difference in profit as a percentage of turnover between an average producer and one in the top 20 per cent, was 9.91pc versus 33.15pc, with the difference in variable costs 42.48pc vs 33.10pc.
“These are significant differences and highlight the importance of producers looking to their main profit drivers in their enterprises, for sheep these are reproduction rate, turnoff weight, fleece value and low mortality while in cattle these are reproduction rate, turnoff weight and low mortality.”
Mr Vogt said managing the feedbase and achieving production goals from a pasture-based system wherever possible can improve enterprise profitability. With dry matter produced in a pasture-based system generally costing only 10-12 cents a kilogram versus an average cost of 25-30c a kilogram on average for supplementation.
“The economics are naturally very different and as a result we need to be very strategic when supplementary feeding,” he said.
“In terms of the current season while the Lower South East is travelling well, many other areas across SA have had significantly lower rainfall for the year.
“So, this will obviously impact on pasture availability and short-term enterprise profitability in some regions.
“I would encourage producers to take the long view though and seek to increase their pasture management skill set which will assist them make balanced decisions under both current and future variable seasonal conditions.”
Mr Vogt said when integrating cropping and livestock, diversification alone is not enough to ensure a profitable business.
“It’s important to have some level of simplicity in your business, and often having fewer enterprises can be a simple way to achieve greater clarity and focus,” he said.
“Ensuring you have a high level of implementation skill can also help to increase the profitability from resources currently available to you, in livestock this can be through a more robust alignment to key profit drivers or by simplifying enterprises to save on full time equivalent labour unit targets.
“Labour often accounts for about 70pc of overhead costs in a grazing business, so being able to effectively utilise FTE targets will help to improve productivity.”
Mr Vogt said optimising gross margins per hectare in a sheep enterprise related to stocking rate per hectare multiplied by the individual animal performance, then minus variable costs.
“The most common variations in grazing businesses are in supplementary feed, fodder conservation, and pasture seed costs,” he said.
“There are also variations in fertiliser cost, however I am a strong advocate of replacement phosphorus.”
Mr Vogt said producers with a dual-purpose flock should focus on targets of 120pc weaning, $120 per head minimum for lambs and a $60 adult fleece value.
Similarly, a wool-focused flock should aim to achieve targets of 100pc weaning, $100 per head for sheep sales and an $80 adult fleece value.
A maternal-based composite flock has a stronger focus on lamb, with producers urged to target 150pc weaning, $135 per head minimum for lambs and a $15 adult fleece value.
Mr Vogt said strong commodity pricing was creating additional investment capacity on well managed farms
“Ideally we need to invest wisely now with a view to either create new wealth or be able to maintain profit margins at lower commodity pricing,” he said.
“Often our wish list is longer than available resources, so there is a need to prioritise!”
He said potential areas to consider investment in included skill building, debt principle reductions, infrastructure investments to reduce or eliminate labour, business growth through land acquisition, on-farm productivity enhancements, off-farm investment and preparedness for independent retirement and future succession.
A simple infrastructure investment included the installation of cattle and sheep grids to reduce the time spent opening gates.
“A grid may cost $5000 to install but if you’re having to open and shut a gate twice a day, it will potentially deliver a 20.6pc return on investment in time saved, and that’s probably quite a conservative figure,” he said.
GROWING SA is South Australia’s only forum to debate grains and livestock advocacy, research and farm business issues. Livestock SA and Grain Producers SA will partner to host the conference on Friday 14 September at the Adelaide Hills Convention Centre, Hahndorf. Livestock SA and GPSA will also host their annual general meetings as part of the day.
Major sponsors for 2018 include Grains Research & Development Corporation and Meat & Livestock Australia as gold sponsors, Rabobank as silver sponsor, Rural Business Support as breakfast sponsor, and Agricultural Biotechnology Council of Australia as speaker sponsor.
Sponsors supporting the event include Quality Wool, Commander Ag, Spanlift, Viterra, WFI Insurance, Tru-Test, Small Business Commissioner, Australian Wool Innovation, PIRSA, Elders, Centre State Exports and Robinson Sewell.
Details: Visit www.growingsa.com.au