Upturn in Beef and Sheep Returns

The past year has been extremely challenging for mixed beef and sheep businesses, but the outlook for 2013/14 looks much improved.  This is illustrated by Andersons Meadow Farm model which was updated for the recent Livestock Show.

Meadow Farm is a notional 154 hectare (380 acre) lowland mixed beef and sheep business typical of many family run livestock operations across Great Britain.  The farm runs a 60 cow suckler herd and a 500 ewe mule sheep flock; in both cases finishing all progeny.  There is also a small dairy cross bull beef enterprise and 32 hectares (80 acres) of feed wheat and feed barley is grown.  The business is managed on a real time basis and provides an accurate representation of business structures and changes in annual performance.

As can be seen from the table below, the year to 31^st March 2013 was difficult.  High feeds costs, poor livestock performance and subdued lamb prices in the main marketing season were the main contributing factors.  Yields of crops and forage were also affected by the wet weather.  In fact, the 2012-13 year showed the worst financial return for Meadow Farm since 2009; yielding a business surplus of just £20 per hectare.  The business only achieved a positive business surplus as a result of Single Payment Scheme (SPS) and Entry Level Stewardship (ELS) receipts (but after the proprietor’s drawings).  The extent of the loss making position from the farming activity alone means that the business is unlikely to survive in the medium term without these support payments.  Investment in machinery and infrastructure was minimal, driven by the cash restraints.  This has helped to delay overhead inflation though. 

* Per hectare return for the area the enterprises occupy

The current 2013-14 financial year is budgeted to show a significant improvement in fortunes for Meadow Farm; the predicted business surplus is £158 per hectare.  This is driven by an improved livestock gross margin, which in turn has been generated by the expected robust beef and lamb prices in the second half of 2013.  Although relatively small enterprises, the wheat and barley crops are also forecast to contribute more this year.  The overhead costs of the business are also budgeted to increase, mainly as a result of modest routine property investment. 

Looking further forward, 2014-15 is likely to yield a similar level of total business gross margin as the current year, but the overhead cost creep continues.  This is not helped by the planned replacement of machinery.  The positive business surplus of £141 per hectare will still only be achieved as a result of the SPS income.  Depending on the eventual outcome of CAP reform, support payments may well fall by more than shown in the model. 

Despite the improving financial picture for Meadow Farm (from the poorly-performing 2012-13 year), the business is not robust enough to withstand significant reductions in future support payments.  Many proprietors of similar businesses may assume that there are few options available to do things differently in order to strengthen the business, but in fact there are huge opportunities for many businesses of this type to implement more profitable and robust systems.  Using the ‘normalised’ Meadow Farm business structure for the 2014-15 year, it is possible to show what returns the business could achieve with some structural and operating changes.  This has been performed in a way that maintains Meadow Farm’s core beef and lamb enterprises.

The restructure has meant that the sheep enterprise is increased, bull beef finishing ceases and the combinable cropping activity is undertaken on a contract farming basis.  The suckler beef herd remains.  The effects of these enterprise changes mean that more focus is given to livestock and grassland management and performance, but equally importantly, the overhead structure of the business is significantly reduced.  The changes result in a positive return from the farming activity of £73 per hectare after allowing for drawings but before SPS and ELS income is considered.  The support payments are still received meaning that the business achieves a surplus of over £300 per hectare.