Farm Stocking rates and Cash Profits

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stocking rates
Farming wisdom says costs are mostly fixed, so run as many stock as possible and it will produce the highest profits. Government calls that “increasing productivity”. I did that in my early days but then changed tack after listening to others and applying my Chartered Accountancy brain to it. Accountants are most interested in the bottom line – the profits you have to spend in return for running your farm. The problem is that farmers compete with each other in the sale yards and many other aspects of farming, including stock carried. The more stock they run the more it does in fact cost them to run the farm AND the more stock they turn off. That means more meat on the market. As the market is reasonably static, that causes prices to fall and profits fall with them. As a farmer I am interested in two things – the wellbeing of my stock and profit, or the return on my  investment in the farm. So I run well under the standard stocking rate. Perhaps 60% - 80%. Many costs do in fact fall, perhaps because the place does not run at such a frantic pace and there is not the same pressure on everything. Although we could store over 20,000 small bales of hay and used to do so, feeding out through winter, I changed that after one of Terrey McKosker’s “Grazing for profit” courses. I sold our three tractors, stopped growing Lucerne, stopped storing hay or fuel of any kind and decided to run only the number of cattle that could do “smorgasbord” or grazing only. In one big move, I cut turnover by 50% and costs by 90%. It made good profit and was much more enjoyable to run the farm. I don’t say it would work for everyone but as you recover from “drought flood and fire” you could try selling more stock as you reach 80% of what you would normally carry. By carrying more stock we keep more cash profit locked up , mostly in breeders. Sounds like good conservative policy. However, because it does not produce cash from the sale of those extra breeders or others held, we might have to borrow more from the bank or do without the money. The most destructive factor in farming is not drought, flood or fire, but debt. Interest and charges are outrageous but worse it is like getting stuck in a bog. The harder you try to get out, the deeper in debt you get. A seriously bad season or price collapse can turn manageable debt into a long term financial disaster. Our most satisfying and productive work in GBAC is rescuing farmers from the bog of bank debt. Sometimes we use a financial rope and sometimes a “snatch’em strap”. Either way they are pretty happy afterwards. If those extra breeders and their progeny held back to build numbers have to be sold in drought conditions, which often happens, then the prices are pretty ordinary compared to if they are sold at the end of a wide-spread re-building phase or even in a normal season. So the same cash does not flow in. When you do try these sort of exercises to see the impact on profit, examine your financial statements with someone who can analysed them properly for you to see what the result was. Figures can be very misleading and plenty of farmers are misled even more than they try to mislead the tax office. Get a financial analyst who knows both accounting and farming to work on what your accountant prepared for the ATO and see what surfaces. It can be very revealing. Farmers who want to make good profits have to focus on profitability all the time. Many farmers focus on the appearance of their stock, homestead, yards, vehicles and fences, which has just the opposite effect on profit. Profit comes from maximum income with minimum expenditure. There is a sweet spot to deliver good profits and pleasant farming. It takes some finding.

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