31 August 2009

4 minute read

It does, however, require managers to go beyond grazing yield and examine the economics of the grazing systems. Whether evaluating the current system or charting forward a new combination, taking a planned approach reduces unknowns and focuses the process on the economics.

"Local forage or research association field days can be the place to take stock of grazing systems and learn about options to make profit-driven improvements to individual operations," says Dale Kaliel, senior economist: production economics with Alberta Agriculture and Rural Development in Edmonton. "While touring plots and demonstrations, producers should ask for each option they view, is it 'do-able' on their operation, will it pay, will it make a grazing system better and will it improve a beef enterprise's costs."

When evaluating their grazing system, the first thing producers need to do is shed the old mind-set of grazing as a cost centre. When grazing is viewed as a cost centre, the tendency is to minimise expenses and, directly or indirectly, shorten the grazing season.

"A recent AgriProfit$ economic analysis showed that cow herd feed costs per animal unit day (AUD) commonly exceeds the daily cost of grazing. This provides motivation to seek opportunities to extend the grazing season," says Dr Kaliel. "When the grazing system is viewed as a profit centre, a more effective balance is struck between productivity and cost per animal unit month (AUM). Grazing is then treated like any other crop and as a result, the land can earn a profit relative to its productive and economic potential."

A systems evaluation involves assessing what each of the system elements contributes to improved profitability. Each element must be profitable in its own right, and the sum of the elements should reduce overall costs, improve overall value of production, or a combination of both.

The three steps to building a profitable grazing system are:

Step 1 - assess individual grazing elements - whether evaluating an existing system or considering changes, the starting point is to assess each field's basic unit costs, returns (at a reasonable market value) and resulting profit. In this step, the producer needs to know the unit costs per AUM (not per acre). With the expected costing and productivity information, decisions on continuing a grazing application, taking on a new practice or bringing in a new crop become more effective.

For crops they have grown in the past, producers can build their assessments based on their historical costing. If they do not have their own cost information, or are looking at a new practice or grazing crop, local benchmarks are a good starting point.

The goal is to define the full costs and returns, going beyond the primary costs of seed, fertiliser and chemicals and including operating costs such as machinery operating and labour value, and overheads such as taxes, depreciation and capital interest. A share of the cost for establishing perennial crops may also need to be included.

"At the end of this step, the decision point is fairly straight forward," says Dr Kaliel. "A specific grazing option would only be entertained if it will be profitable over the long term."

Step 2 - grazing system assessment - involves accounting for the quantity, quality and timing of grazing dry matter delivered to livestock over the course of the grazing season. A system assessment that incorporates economics requires that the costs and value of grazing produced be tallied, including key measures such as: profitability of the whole grazing system, total cost per AUM raised (again, not per acre) and the flexibility buffer the system delivers

"An economic assessment of a grazing system provides the manager with an enterprise plan that is profit-driven, not production-driven," says Dr Kaliel. "Its strength is that it shows the value of balancing intensity, crop options and timing of delivery in dollars and cents. Grazing system profitability is seldom achieved when the focus is to minimise expenses."

Step 3 - herd and grazing combined -a simple tally of the current herd plus grazing enterprise costs and returns. The intent is to show net profit for the use of the herd and grass production assets combined. This is the 'base case' against which change options will be compared.

"This step offers opportunity to entertain complementary actions within each enterprise," says Dr Kaliel. "Using this three-step process to take stock of current performance and to evaluate opportunities will put you on the path to business success. Remember that each field, practice or crop in the farm plan must be profitable and any change must add to field profitability.

The grazing system must be long-term profitable and again, any change must add to enterprise profit. Also, the combined herd and grazing enterprises must be profitable and any change within either must be shown to improve overall profitability."

August 2009