Trade or breed to restock?

The answer seems to be trading, probably, with a rather large emphasis on probably.

This week, Meridian Ag consultant Paul Blackshaw presented an online Ag Vic workshop to help beef producers make good decisions.

"They're asking, 'What are my options in terms of being able to use this grass to make money and the other thing is, is there an opportunity for me to look at the structure of my business and is the enterprise that I'm running now suitable for the future?" Mr Blackshaw said.

He has created a spreadsheet that allows producers to make good financial choices but acknowledged that profits were not the only drivers.

"We talked about people's approach to risk and what they really liked about their businesses," Mr Blackshaw said.

"There will be some people that, because they're cow and calf people, it wouldn't have mattered what the numbers said."

The key physical information producers needed was how many animals they currently had, the stocking rate in dry sheep equivalents (DSE) per hectare, what stocking rate could be sustained and the weight gains that could be expected.

"It takes some knowledge about the history of their own property to know what's realistic when it goes back to normal," Mr Blackshaw said.

"They also need to have a really good handle on the finances of their business and, in particular, the split between the variable costs and overhead costs."

While that was useful on a gross margin basis, Mr Blackshaw said it those costs should be broken down into per DSE figures to allow for different types of stock.

The next critical piece of information was far less easily quantified.

"Then it's, 'What are the prices are going to be?' and that's the huge variable," Mr Blackshaw said.

"We spent probably half of the workshop looking at the model and just pumping a heap of different numbers into it.

"This is sort of an experimental model that I'm going to get some to farmers road test as well but the model was saying that, if you replaced a full cow-calf operation with full trading based on today's prices, then your trading operation is probably more profitable."

But Mr Blackshaw urged caution.

"This is based on all these huge assumptions, some of which the farmers can tweak for their own business," he said.

"There are things that they can change in their own business but there's stuff that's totally outside their control.

"At a bare minimum, you've got to be hanging onto these animals for three or four months.

"We tried to model a fairly simple system where you're going to buy animals at about 250 kilograms and sell them at about 500kg in about a year.

"A year in the in the beef market is an awfully long time.

"So, if your prices in 12 months' time are dramatically less than what they are today, it could go a little bit pear-shaped.

"The one good thing is, if you sell all your animals at 400kg in a depressed market in 12 months' time, then you're going to restock in a depressed market as well."

For many, the ideal solution could well lie in a hybrid approach.

"People could choose a stocking rate they know can sustain a core breeding herd through some dry years but go in when they have an excess of feed and and buy some trading animals to use up that excess," Mr Blackshaw said.

"The important thing is that it remains profitable and that means you need to do some modelling, which can be quite complex.

"With this tool, we want to hold people's hands through that process."