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Beyond the Bale : April May 2009
26 COST OF PRODuCTION April – May 2009 Beyond the Bale tool measures the drought’s real cost For this father-and-son team, production costs have been carefully tallied for decades and the exercise continues to prove its worth Keeping an eye on the bottom line – woolgrower Charlie bell of ‘paling yards’, Taralga, nsW. numbers and restore productivity levels saw COP fall away quickly from its drought peak to $7.34/kg clean. Although this was 60 cents above the Bells’ nine-year average, the average stocking rate for that year was still 2,000 DSE below the 1996 to 2006 average. Charlie says knowing your COP is crucial to running a business. “If you don’t know it, then you don’t know what your profit levels are – or even if you’re making a profit.” “Dad’s been measuring COP for about 20 years and it’s something you need to do every year because, as we all know, things can change.” It is a financial tool that also helps instil PHOTO: kELLIE PENFOLD By Rebecca Thyer lthough calculating cost of production (COP) is not a new concept for the Bells, this business management tool has highlighted to the father-and-son team what drought conditions and subsequent on-farm changes can mean to the books. And, positively, how quickly post-drought modifications can improve productivity. Before the 2006 drought, the Bells’ a 20,000 DSE (dry sheep equivalent) wool production enterprise at Taralga, on NSW’s central tablelands, had a COP of $6.60 per kilogram clean. But with 2006’s annual rainfall 40 per cent below the long-term average of 805 millimetres, and spring rain that year 60 per cent below average, COP increased (and almost doubled) from their nine-year average to $12.60/kg clean. Charlie says that the impact was severe, given he and his father Richard had just rebuilt stocking numbers following the previous drought. COP also rose because of drought management decisions to sell a quarter of the flock and to hand feed the remainder. Their 3670-hectare property ‘Paling Yards’ has 1600ha sown to perennial pastures – phalaris, cocksfoot and subclover. The remaining land is dominated by native perennial grasses – redgrass, microleana and dathonia – and annual legumes such as Danthonia and subclover. But with reduced rainfall in 2006, on top of four seasons’ worth of late seasonal breaks, supplementary feed was needed. At a cost of $7.55/DSE, 70 per cent higher than the nine-year average of $3.20/DSE, supplementary feed accounted for the majority of the Bell’s 2006 COP rise. A decrease in labour efficiency also hurt the Bell’s COP. During 2006, labour efficiency went from a nine-year average of 8,100 to 6,900 DSE per labour unit, owing to the additional time required for supplementary feeding and decreased livestock numbers. To address this, a drought lot was constructed. It improved labour efficiency because sheep were fed in a central location, which also allowed the Bells to reduce stocking on improved perennial pastures only just recovering from previous droughts. Pastures established in the year before, and the year of, the drought were completely destocked, avoiding undue grazing pressure at a time when pastures were particularly vulnerable. The decision the next year (2007- 08) to purchase livestock quickly, rebuild a sense of control and one that has shown the Bells that Merinos are comparable to prime lambs and cattle. “Merinos are doing Ok. But without knowing what it costs to produce Merino fibre, you cannot improve on it. The more you understand it, the more you can work on reducing it. If you know labour is killing you, then you cut it back or expand the business to make it more effective.” According to Charlie, it is important that COP is looked at in a broader context. “You need to analyse it against others’ figures. Your COP might not look too bad, but if your neighbour or someone in a comparable position is doing a lot better, you’ve got to ask yourself why.” Post-drought, the Bells are concentrating on fertiliser management and labour efficiencies to improve COP. For example, they are taking a strategic approach to phosphorus fertiliser use. Charlie feels that minimising fertiliser inputs in the short term, while prices and on-farm soil phosphorus levels are high, could go some way to reducing COP and maintaining or improving margins. Furthermore, to increase labour efficiency, the Bells have constructed laneways over a large part of the farm, and have invested in sheep-handling infrastructure to facilitate livestock movement. Increases in stocking numbers will also have an impact. “Our numbers are back to about 70 per cent capacity. So, we’re still ticking along,” Charlie says. More information: Charlie Bell, firstname.lastname@example.org
February March 2009
June August 2009