Cattle gross margins ok, but better days ahead.

Last week we looked at how sheep gross margins had fared in Victoria during the last financial year, and it was a very profitable time. Cattle producers also had a pretty good year in the areas where rainfall was good, but nothing like they are likely to be in 2020-21.

The Victorian Livestock Farm Monitor Project (LFMP) looks at farm performance and compares production and profitability levels.  The 2019-20 report showed cattle gross margins were good, but only in areas where there were good seasonal conditions and plenty of grass. 

It may also have helped where cattle were sold later in the financial year, as prices rallied sharply for the March to June quarter.

Figure 1 shows the 2019-20 cattle average gross margin was almost double the long term average in Western Victoria and 20% higher in Gippsland.  Northern Victorian gross margins were below the long term average. 

The main difference between the regions was in beef production per hectare.  Western Victoria was the highest, at 719kgs, followed by Gippsland at 412 kgs and Northern Victoria at 260kgs.  Western Victoria also had the highest dollars per head, but this was due more to higher sale weights than timing.

Compared to historical levels in Western Victoria, gross margins performed pretty well.  Figure 2 shows the real gross margin was the third highest on record.  It was nowhere near the records of 2017-18, but still good regardless.

In Gippsland gross margins were the fourth highest on record, and double 2018-19.  In Northern Victoria the lower beef production meant gross margins were around average, but close to a 30% increase on 2018-19.  At least things were on the improve.

To get an idea of where gross margins might be headed this financial year, we projected the average cattle sale price in figure 2.  If we use the 2019-20 average sale weight of 512kgs, and a price of 400¢, which is around the average for feeder cattle for this financial year, it gives an average sale price of just over $2,000 per head. 

Much depends on production levels, but we can probably expect cattle gross margins are again going to be over $1000 per hectare in Western Victoria in 2020-21.

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What does it mean?

While cattle producers didn’t have a great year in 2019-20, they are headed for one in 2020-21.  If we look at wool and lamb gross margins, cattle are likely to outstrip both in all regions over the coming year.

Don’t expect much of a shift from sheep to cattle production, as lamb has been consistently stronger for the last ten years.  The next couple of years should see cattle producers doing much better than in the past however.  

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Key Points

  • The LFMP showed cattle producers had good years in Western Victoria and Gippsland in 2019-20.
  • Northern Victorian cattle producers had an average year, but low production hurt.
  • Higher prices should see much better gross margins this year in all regions.

Click on figure to expand

Click on figure to expand

Click on figure to expand

Data sources:  Agriculture Victoria, MLA, Mecardo

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