“There are more and more farmers who are proactively making choices based on business principals,” says Dale Kaliel. Kaliel works on the AgriProfit$ program, a farm business analysis service focusing on unit production costs, overall farm financial roll-up and financial benchmarks.
“The key to ROA is to improve production and economic efficiency within your capital footprint,” Kaliel says. That’s something farmers do generally very well. However, multiple events directly impacted returns in the Canadian beef industry in the 2004 to 2008 period.
The fall-out from the BSE crisis lingered like a bad migraine, and volatility in the exchange rate added to the pain. Additionally, the soaring feed prices a few years ago and a severe drought in Alberta in 2004 affected cost of production.
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“These events kick-started a change in processes in the industry,” says Kaliel. “Cow-calf production systems are on the move. They’re changing.”
Today, ranchers are using more cost-efficient ways to raise pounds of beef, Kaliel says. More producers are emphasizing grazing systems and they are taking full advantage of grazing with spring/ summer calving. Also, he says there’s been a switch back to wanting smaller cows.
“We’ve been successful over time in creating larger carcasses and more pounds per animal with a feeding dry-lot mentality,” says Kaliel. However, in the last decade as the efficiency gains plateaued and feed grain prices rose, grazing became a more economical choice. Kaliel says cattlemen today are better at grazing and have improved returns on their land assets.
In a recent study of cow-calf operations using AgriProfit$ data, Kaliel found the average ROA in Alberta to be closer to three or four per cent. AgriProfit$ customers are generally medium to larger farms, whereas the chart numbers above are from the federal Farm Financial Survey, which includes smaller beef operations.
ROA analysis shines a spotlight on productivity and market value of land. In the beef sector, those factors are already driving the industry’s evolution, including the shift of livestock to Western Canada.
“You can grow cows almost anywhere,” says Kaliel. Other sectors, such as fruit, are much fussier, so they can bid up land prices. It’s a difference that means a competitive edge for beef farmers in areas with lower land costs, and in the long term, the rolling ROA average will continue to move lower value production to lower-cost land, he says.
“All the ag sectors are essentially competing for land assets,” says Kaliel. “… And economics is driving the best use of that land.”
For some livestock species such as poultry, we’ve substituted investment in land assets for depreciable expenses and technology. Also, increasing asset values should have a negative effect on ROA. However, many other cost and revenue factors can affect ROA.
With 70 per cent of Alberta’s farmers 50 years of age and older, a significant chunk of those assets will soon begin changing hands. “New entrants and expanding operations need to be strategically positioned to take advantage of those resulting business opportunities,” says Kaliel.CG
