Wednesday, May 16, 2012

Northern Beef Production - Struggles Economically

The northern beef industry is on a financial razor's edge as rising debt meets falling land prices.

Consultant, Phil Holmes, told this month's Beef 2012 seminar in Rockhampton that a typical northern beef business is losing $100,000 a year, in Mr Holmes's estimation, at a time when the rangelands are shedding value faster than any other land category, and beef margins continue to tighten.

"At the moment, if the price of beef falls by 10 cents, it will tip the average northern beef herd into the red," Mr Holmes said. "That's how fine the margins are."

Mr Holmes, a vetaran farm consultant renowned for not mincing his words, painted a picture in which wide swathes of the northern beef industry borrowed heavily against rangeland values that rose by orders of magnitude over other land categories.

But for the past five years, rangelands values have been falling with no bottom in sight.

That fall has unmasked the fact many beef operations have been surviving on increasing borrowings, not on cash flow.  Incomes have been savaged by years of poor rainfall and declining beef prices, and increasingly, interest payments.

"In the north, you need to maintain equity at 85 per cent in the long term. "If you let it drop below that, for a family operation interest will consume too much of your working capital and you won't have enough cash left over to fund the business in other areas." "Not everyone took on debt; a lot of people had existing debt that just got worse through that period. But it's just crippling the industry. There is too much debt out there, and not enough production to cover it."

Mr Holmes said in the mid-1970s, the value of rangelands property began to rise a little faster than wheatbelt and high rainfall country.

In 2000, rangelands values cut loose from other land trends and went ballistic, so that by 2007 rangelands had appreciated about 700 per cent in 30 years. Over the same period, high rainfall country had appreciated 330pc, wheatbelt land about 200pc.

In 2007, rangelands property began a sharp correction that has since taken values back about 15 per cent. The other land categories began to correct in 2009, but not with the same severity. While land prices have taken flight, beef prices have done the opposite. In real terms, beef prices haven't changed since 1949.

"The only reason we're still in business is that we've grown more efficient," Mr Holmes said.

However many northern beef operations haven't adopted efficiencies, he said, maintaining out-of-date practices while masking income shortfalls with borrowings.

This was Phil holmes at the recent Beef Conference in Rockhampton.  You can add the 2011 live export disaster to the above issues and it is why beef is a bit of a problem.

I would also like to think that many producers have abandoned any thought of improved pastures, even in smaller areas.  Better pastures do mean better production, especially in wetter regions such as the Top End of the NT and much of coastal and near coastal Queensland.

And remember, it is us as consumers who have an expectation that food prices will continue to go down just like electronics prices.  Maybe we just need to realise that food production while more efficient than previous years, is probably unable to make enormous gains in production, although productivity of labour has risen.  Poorer seasonal conditions cannot be changed.

It would be interesting to compare many of these things over the 2010 - 2012 period when seasonal conditions were better.

partially Sourced from :

No comments: