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Beyond the Bale : February March 2009
February – March 2009 Beyond the Bale cost oF production cop A WortHY cHAllEngE By Kellie Penfold of clean wool production in three years is achievable. that is, says Bob Hall of icon Agriculture in darkan, Western Australia, if growers accept the challenge. there is often one of two reasons that a reduction a appears unachievable following analysis: the operation is in such a bad state that the outlook is terminal; or it is already highly efficient and lacks the imperative to reduce costs. “it’s much harder to achieve cost-of-production savings if you are already efficient,” Bob says. to start the process, woolgrowers are urged to thoroughly analyse their business and benchmark their performance against others. the next step is to be prepared to set short and long-term goals for decreasing costs and increasing profits. some changes will be slow but will provide continual advancement, such as pasture improvement and genetic gain. Bob comments that an initial investment may not assist cop reductions in the short run, but will prove beneficial in the end. According to Bob, the prime factor in short-term profitability relates to stocking rate. “A five per cent increase in your stocking rate has an immediate impact on your cost of production by simply sharing the fixed costs across more sheep – spreading the overheads,” he says. For growers heading down this path, Bob suggests the most crucial element to success at high stocking rates is having a management system – or ‘backdoor plan’ – for tough seasons. A stocking rate lift alone will more than meet the 40-cent reduction on a static cost base. “After stocking rate, the next most important profit driver is livestock trading. this is a combination of prices paid and those received, plus lambing and death percentages – again, short-term basic husbandry,” Bob says. “For longer-term results, changes to ewe management using the lifetime Wool program Wi’s strategic goal of decreasing woolgrowers’ cost of production (cop) by 40 cents a kilogram recommendations will help increase profitability.” Bob regularly suggests clients attack some of the costs that are often perceived to be fixed. “How about changing to cradle crutching? savings are not only in the cost of the operation, but in less degradation of the wool. this alone is more than 40c/kg clean,” he says. Although the endeavour can be challenging, Bob believes growers can make a difference studying efficient growers, participating in grower groups, maximising the value of r&d recommendations, and tackling problems through efficient management. “Make things happen rather than waiting for someone else to put things right.” More information: Bob Hall, 08 9736 1055, email@example.com a fair Cop for soMe Data collected in a recent study by Icon Agriculture suggests the top 10 per cent of woolgrowers have achieved a five per cent reduction in cost of production (COP) each year for 10 years. The average client achieved 3.6 per cent a year. Icon Agriculture found the average 2007 COP was $4.11 per kilogram wool (greasy). But with input price increases, this could rise to a COP of $5.19/kg wool (greasy) for 2009, without any changes made by woolgrowers. “Some woolgrowers will be able to achieve a 40 cents per kilo reduction in costs in one year,” Icon Agriculture’s Bob Hall says. “Others will take longer and, yet again, others will find it impossible. For many it will be a challenge they could successfully embrace.” To start the process, woolgrowers are urged to thoroughly analyse their business and benchmark their performance against others. Monitoring project provides useful comparisons The Victorian South West Farm Monitor Project has been running for 37 years. It provides a financial and comparative analysis of 30 beef, sheep and cropping farms in south-west Victoria. In recent years a more detailed Wool Industry Farm Monitor Project has plotted the financial figures of an additional 70 wool and lamb producers involved in the BESTWOOL/BESTLAMB program across Gippsland, north-east Victoria and south-west Victoria. Information in both reports is used to establish regional benchmarks, monitor trends in farm productivity and profitability, and evaluate the differences between the top performers and other farms. More information: Figures from both projects are available at www.dpi.vic.gov.au, or by calling 136 186 Wool Cost of produCtion (Cop) figures froM the south West farM Monitor proJeCt YEAr 2006-07 2005-06 2004-05 2003-04 AVErAgE cop ($/kg clean)* $14.87 $12.31 $10.79 $9.70 *ExcludEs intErEst And lEAsE costs ? strategies to reduce wool 5 production costs Announced in 2008, one of three goals of the AWI Strategic Plan is to reduce wool’s cost of production (COP) by 40 cents a kilogram clean over three years through increased productivity and lower costs. AWI has compiled a list of areas for woolgrowers to consider when planning how to reduce COP. Ways to loWer Cop ? l 40c/kg clean represents about a five per cent reduction on the average cost of production of about $8 a kilogram clean (estimated national average cost of production in non- drought conditions). For fine woolgrowers COP can vary from around $7 to more than $20 per kg clean. l COP indicates the outlay required of growers to produce wool, and a measure of the efficiency with which it is produced. Calculating COP is an important first step in assessing flock profitability and a first step to making change. l Once the COP is determined, growers can investigate ways to scale down by reducing unnecessary costs or increasing productivity. This reduces COP by spreading overhead costs across more kilograms of wool. l Overheads, such as insurance, depreciation and wages, are a major cost to wool businesses. Adopting innovations that increase productivity and spread these overheads over more kilograms can have a major impact on business profitability. innovations that Can inCrease produCtivity and reduCe Cop l Lifetime Wool principles can increase average net returns by $2 per ewe a year. l Using Timerite® to control red-legged earth mite (RLEM) in pastures can increase stocking rates by one to two dry sheep equivalents (DSE) a hectare. l Increased pasture production – the use of perennials in the system and better use of pasture grown – will allow stocking rates and profit to be sustainably increased. l Using superior genetics can increase returns by up to $1.50 per head. top 20% $11.78 $9.57 $9.11 $8.75 rAngE $9.46 to $23.39 $7.61 to $16.38 $7.56 to $20.55 $4.54 to $18.66 l Employing integrated parasite management – undertaking fecal egg counts, monitoring drench resistance, rotating drenches, and using rotation grazing to reduce worm burdens – can reduce input costs and production losses, and provide a benefit of up to $3.50 per head. More information: www.wool.com
Dec 08 - Jan 09
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