Sheep compare well with crops

Farm management consultant Ashley Herbert, one of 12 presenters at the updates, pointed out farmers often underestimated the financial contribution sheep made to an enterprise mix.

Mr Herbert, from Agrarian Management, backed his argument with net financial return statistics for cropping and mixed enterprises in the Central Wheatbelt and higher-rainfall Great Southern fringe region.

Based on farm data averaged over the past five years, and compared with yield and return estimates for the current season, Mr Herbert predicted sheep would "compare favourably" with cropping in drier areas.

It would match or better wheat and barley margins in higher-rainfall areas with higher stocking rates, he said.

In drier areas, with a higher chemical spend this season, Mr Herbert estimated net return from cereal crops would be about $253 per hectare, with high yields countered by prices having "come off".

But with strong wool prices, combined with continuing good turn-off prices, Mr Herbert expected a net return from sheep to jump from a five-year average of $102 per hectare to $180/ha at average stocking rates this season, and with significantly less risk than cropping.

In higher rainfall areas he predicted the net return from sheep would jump to $438/ha compared to $400/ha, $290/ha and $528/ha respectively for wheat, barley and canola.

"Clearly cropping is more profitable, no question, but it's not what people ordinarily think it is," Mr Herbert said.

"There's a lot of variability from farm to farm.

"There are some people doing exceptionally well out of cropping and making a lot of money, but there are others who aren't doing too well out of it at all and are probably better off not doing it.

"If you are not good at it, if your farm is not suited to it, you are not going to do as well at it as you may think.

"This is why it's important, I believe, to do some benchmarking so you know what's actually happening.

"People expect cropping returns to be at least 50 per cent higher than sheep, but that's not always the case, for some it is double but for others it's the same or less.

"And adding more cropping area to an enterprise doesn't necessarily equate to adding more profit.

"(Looking at 2007-15 farm economic data analysis) the message I get is that with more intense crop systems you are taking on inherently more management responsibility- you have to be able to tick all the boxes more regularly than for a less risky system.

"If you haven't got your head around what you need to do you could end up doing all the work, taking all the risk and being no better off.

"If it (cropping) pays off there's an absolute motza in it, no question, but you have to be very good at it.

"A sheep enterprise is widely recognised as being relatively stable so you mix that with a volatile crop operation and it introduces stability to a degree into mixed farming.

"That's one of the keys to a mixed farming operation, it's less volatile than one that's wholly exposed to cropping.

"For some people there's a value in that, for others there isn't."

Mr Herbert also presented an argument that a wool enterprise this season would compare favourably with a prime lamb enterprise.

On the surface prime lambs had potential to be significantly more profitable – $42 dry sheep equivalent (DSE) compared to $57 – but the "compromises" required to make a prime lamb operation work reduced the margin, he said.

"Prime lambs are still about 10 per cent more profitable, but for that 10pc you are running all ewes, lambing at a more difficult time of year, you retain older ewes in your flock so their fleece has less value and there's a noticeable drop in price when you sell them as cast for age."

Mr Herbert said two decades of poor returns from sheep and wool, following a "boom time" in the 1980s, often soured farmer's perceptions of their value in an enterprise mix.

"In 1987 you could sell your wool clip, take your wool cheque, drive to Perth and buy a house in Subiaco and still have change - that probably says more about the price of houses in Subiaco today than it does about the price of wool," he said.

"The 1990s and the decade following were tough for sheep, there was no money in sheep.

"(But) the past five years have been pretty good for sheep - fundamentally sheep are very strong.

"It hasn't been this good for 30 years but the lesson over time is when there's all this money coming in, the trick is holding on to some of it in the business."

Mr Herbert's analysis was commissioned by the Sheep Industry Business Innovation (SIBI) project as part of its work in understanding barriers to increasing sheep numbers in WA and to supply markets with customer-focused products, particularly in Asia and the Middle East.

The $10 million Royalties for Regions-funded SIBI investment started in October 2015 and will finish in June 2018.

The analysis Mr Herbert's presentation, and some of the other presentations at Sheep Updates was based on, will be available later this month at www.agric.wa.gov.au/sibi.