On the back on historically high cattle prices, ABARES estimates the cost of Australian beef production for the three year period ending 2015-16 has risen as more producers use the increased cash flow on inputs.
Indeed, northern and southern Australian cost of production estimates were relatively similar, equating to 193c and 199c/kg of beef produced, respectively.
The three year period encompassed the rise of the Australian cattle market to record highs, driven by reduced beef production in the US which lifted global demand.
Average cattle prices received by producers increased from 146¢ in 2013-14 to 249¢ in 2015-16 in southern Australia, while northern Australia was reported to increase from 153¢ to 253¢/kg lwt.
This is a direct contrast to the previous three year period (2008-09 to 2012-13), which – due to the depressed cattle market at the time – saw cost of production remain low as producers reduced expenditure to maintain margins.
Total costs increased particularly in 2015-16, with southern expenditure averaging 221¢/kg of beef produced while northern production systems reached 210¢/kg.
Unpaid labour remains the largest cost incurred by producers, particularly in southern regions where it accounts for almost 40¢/kg of costs.
Meanwhile, as a result of the rising cost of cattle, purchases and transfers represented the second largest cost for both northern and southern Australian enterprises.
Finance costs eased over the reporting period, primarily as a result of decreased interest rates but also due to some reduction in average farm debt per farm, particularly in northern Australia.
Meanwhile, expenditure on inputs such as repairs and maintenance and fertiliser increased. Northern producers spent 18% more on repairs and maintenance in 2015-16 than the previous year, while southern producers spent 24% more in real terms.
Similarly, both northern and southern regions saw a 13% greater expenditure on fertiliser. The outlay for fodder also increased, particularly in the south, where costs increased by 31% from 2014-15 to 2015-16, the result of deteriorating seasonal conditions.
ABARES also identified the economy of scale gained by larger enterprises. Over the three year period ending 2015-16, producers managing smaller sized herds (less than 400 head) typically had a higher cost of production than their larger counterparts.
This was due to smaller herd sizes averaging higher overheads, higher cash costs, greater proportion of unpaid labour and included a greater occurrence of using off-farm income to help meet living expenses.
https://www.mla.com.au/prices-markets/market-news/strong-cattle-prices-drive-cost-of-production/