What this year's most profitable beef producers did

This is what a look under the hood of the data from the top 20 per cent of Australia's beef businesses, as ranked by return on assets under leading economic analysis by agriculture consultants RCS Australia, shows.

The organisation's Profit Probe benchmarking draws on the longest-running data sets in the Australian beef industry.

RCS's chairman David McLean said the most profitable operations minimised the potential downsides to their risk exposure.

They sold animals earlier at lighter weights, weaned early and reduced numbers early.

"They also took opportunities when they arose," Mr McLean said.

"For example, they took on short term livestock trades, watched the market and looked for prospects to make a profit and reduce risk at the same time. They utilised their networks and nurtured partnerships to create better outcomes, compared to businesses who went with the flow."

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In a nutshell, they did the basic stuff pretty well, kept looking ahead and planning and didn't panic, according to Mr McLean.

It might not sound sexy but it is a powerful strategy, he said.

Heading into a year when cattle supply is expected to tighten even more, Mr McLean said there were lessons producers looking to rebuild could take from these results.

Know your numbers is the key one.

"Know what options in the market will give you the highest likelihood of good margins and focus on your cost of production," he said.

"If you can produce a kilogram of beef for less than what you get paid for it, then you have a profit margin.

"Finally, look for short term trade options that allow you minimise market risk by spending less time in the market."

RCS' Profit Probe results for 2018/19 showed the top 20pc of producers achieved a 5.7pc return on asset, with the average ROA for all businesses who completed benchmarking sitting 1.8pc.

"Returns from increase in land value are additional to this return, so when combined, you could surmise that overall returns are better than bank interest in the current economy," Mr McLean said.

The most profitable businesses managed their costs and optimised their productivity in the conditions they were dealt, he said.

They were typically in a combination of sectors - cattle, sheep, cropping - and they were both dryland and irrigation; breeders, growers and traders and they covered a range of breeds and crop varieties.

Not looking for opportunities at times came down to entrenched culture of what the business 'normally' does, which if linked to a focus on waiting for normal years, average seasons and normal prices was a recipe for failure, Mr McLean said.

"Not having confidence to take opportunities links back to not actually knowing what drives profit within each individual business and having some meaningful information to support the decision," he said.

"It also is linked to having the confidence to make a decision knowing you could be wrong."

The costs of production for the top 20pc were $1.16 a kilogram, compared to the average of $1.61.

COP is an indicator of ability to withstand market variation, Mr McLean explained.

"Financial success comes from the difference between how much we produce, what the market pays us and the costs incurred to produce it," he said.

RCS believes the average COP is concerning because it does not provide a big enough margin to achieve goals like growth, expansion, re-investment, debt reduction, succession and management transition.

The message: Determine what your long terms goals are, what profit you need to help achieve these goals and then focus on achieving that profitability, not just surviving.

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