Thinking about changing your strategic direction to make the most of high prices being paid for weaners? Our RCS Chief of Delivery, David McLean, shares a few words of caution to consider before you do.

Price is Only One Driver of Profitability

I’ve heard people talk of wanting to increase breeder numbers because of the big money paid for weaners. 

So, where is the money, in breeding or trading and backgrounding? There is no single answer to this, and it’s critical to remember that the price received is only one driver of profitability. Profit is a function of the price received compared to your cost of production.

I want to discuss this by taking a look into the past. Specifically when certain livestock commodity prices changed significantly. History shows us not to ‘chase the high prices’. Why? Because the price received is dependent on supply and demand. When demand increases above supply, prices rise. When supply increases above demand, prices drop.

What to Consider

There are three key factors to consider; timing, supply and demand. When many people decide to increase breeder numbers, that increases demand which means the price for females will increase. We’ve seen this happen. As a result, the amount invested can be very high.

“The way to maximise profit in your business is to increase productivity at the lowest possible cost.”

Depending on what article you buy, it could take a few years to get any income from this investment. For example, if you purchased a weaner heifer this year to breed, depending on whether you mate yearlings or two-year-olds, it will be 2-3 years before you have a weaner. The problem is that we can’t predict what will happen with prices by then. 

If enough people have decided to increase breeder numbers, then the total supply of weaners could be much higher in 2-3 years than it is now (seasons permitting). If supply is greater than demand, then prices will come down. The problem with chasing prices is that by the time you have something to sell, the high prices may not still be there for that commodity.

Whatever you do needs to work for you and your country. The way to maximise profit in your business is to increase productivity at the lowest possible cost. This might be via a combination of breeding and backgrounding. Or by continuing to background/trade and doing it well. Your strategic direction shouldn’t change rapidly or regularly. If you are going to make significant investments, assess the risk first. Meanwhile, enjoy the good prices!

Author:

David McLean

David McLean

Chief of Delivery

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