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Beyond the Bale : September 2011
September 2011 BEYOND THE BALE 30 ON-FARM With the Eastern Market Indicator (EMI) rising strongly over the past year, and the price of sheep also on a high, sheep producers are being rewarded for sticking with Merinos. This is backed up by analysis prepared by the NSW Department of Primary Industries (DPI) of the gross margins (GMs) of 10 wool and sheep meat enterprises, which shows the GMs of all 10 sheep enterprises are much higher than last year. Furthermore, the three top performing enterprises are all based on Merino ewes. NSW DPI livestock officer Geoff Casburn, who updated the 10 sheep enterprise GMs from last year, says all the wool and sheep meat enterprises analysed are profitable, with GMs rising significantly from last year. "These results are exceptional and a huge increase on last year's gross margins, double in some cases," Mr Casburn says. The top performer was the Merino 18-micron self replacing flock with a GM of $49.45 per dry sheep equivalent (DSE) excluding fodder costs. This is double the GM that the enterprise had last year, which was $24.46/DSE (including fodder). The next best GM was the Merino 20-micron flock breeding first cross ewes that had a GM of $46.39/DSE, followed by the Merino 20-micron flock joined to terminal rams that had a GM of $45.44/DSE. The flock with the highest percentage increase in GM of all the 10 enterprises analysed was the Merino 20-micron self replacing flock; its GM rose by 119 per cent to $40.26/DSE this year. Mr Casburn says these rises are particularly significant when fixed costs, such as electricity, insurance, registrations, rates and owners wages, are taken into account. "To put these increases in perspective, if fixed costs were $20/DSE, the GM last year of the enterprise with the 18-micron self replacing flock ($24.46/DSE) would only provide $4.46/DSE to service debt. "Whereas this year, the same enterprise, now with a GM of $49.45/DSE, would have $29.45/DSE to service debt after fixed costs are accounted for. For a property running 5000 DSE, this increase equates to $147,250 this year compared to $22,300 last year." Mr Casburn says while increased lamb values had contributed significantly to the rise in most of the GMs, the value of cull ewe hoggets, combined with significant increases in wool value, indicate a shift in the margins towards more wool focused enterprises. "Enterprises breeding replacement ewes are now making more than enterprises producing terminal lambs," he says. "However, there is no major difference in the profitability between the majority of sheep enterprises, so the focus should remain on fine tuning current enterprises to ensure they are performing as well as possible, especially as the gross margins did not take into account the cost of changing enterprises and the risks associated with a change." Mr Casburn hopes the increased demand for replacement ewes will encourage producers to place greater emphasis on breeding, which will in turn help rebuild the national flock. The aim of the farm enterprise budgets prepared by NSW DPI is to provide producers with an additional planning tool to help evaluate their own budgets and options. The budgets also include sensitivity tables that allow producers to assess the impact that changing prices and production levels will have on the gross margin. More information: www.dpi.nsw.gov.au/ agriculture/farm-business/budgets/livestock Geoff Casburn, NSW DPI Wagga Wagga, (02) 6938 1630, firstname.lastname@example.org FAST FACTS l Analysis of 10 sheep enterprises, prepared by NSW DPI, show that the gross margins of all the enterprises are much higher than last year. l The two Merino ewe self replacing flocks analysed have more than doubled their gross margins since last year. l The top performer this year was the Merino ewe 18-micron self replacing flock. Sharp rise in gross margins TABLE: GROSS MARGINS OF 10 SHEEP ENTERPRISES (SOURCE: NSW DPI, APRIL 2011) 2010 INCL FODDER 2011 EXCL FODDER Merino wether 18-micron $21.54 $33.85 Merino wether 20-micron $13.52 $23.05 Merino ewe 18-micron self replacing $24.46 $49.45 Merino ewe 20-micron self replacing $18.40 $40.26 Merino 20-micron self replacing finish wether lambs $22.77 $41.88 Merino 20-micron self replacing finish wether Merino lambs - 25% terminals $23.92 $44.04 Merino 20-micron all joined to terminal rams $26.08 $45.44 Merino 20-micron breeding 1st cross ewes $24.39 $46.39 1st cross ewes joined to terminal rams breeding prime lambs $26.12 $45.24 Dorper ewes self replacing $25.82 $45.33 Note: Prices used were 6-month averages: For 2011 (Sept 2010 to Feb 2011) and for 2010 (Sept 2009 to Feb 2010). NSW DPI livestock officer Geoff Casburn says increased gross margins over the past year confirm rosy times for sheep enterprises. PHOTO: SHARON KISS