Making the most of sheep margins

Making the most of sheep margins

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Farm management consultant Ashley Herbert with Georgia Reid, AgPro Management, at the inaugural AgPro Management Stock Con conference where Mr Herbert discussed maximising sheep profits with increases in stocking rate.

Farm management consultant Ashley Herbert with Georgia Reid, AgPro Management, at the inaugural AgPro Management Stock Con conference where Mr Herbert discussed maximising sheep profits with increases in stocking rate.

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With the gross margins for running sheep the best they have ever been, any increases in stocking rate now has the potential to add significant profit to sheep enterprises.

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WITH the gross margins for running sheep the best they have ever been, any increases in stocking rate now has the potential to add significant profit to sheep enterprises.

In 2018, the gross margin of running sheep was at $60 on a dry sheep equivalent (DSE) basis.

According to benchmarking data going back to the early 1980s, when corrected for inflation that number beats the levels reached at the peak of the wool boom in the late 1980s.

This information was presented to growers at the recent inaugural AgPro Management Stock Con conference by farm management consultant Ashley Herbert, Agrarian Management.

"Every year I say I can't see it getting better but it has been stepping up the past three or four years," Mr Herbert said.

"It is a great time to be in sheep and it has certainly been worth the 20-year wait for prices to get to this level."

Mr Herbert said it was a good time for producers to assess their sheep enterprises and investigate where further profit gains could be made.

"Every DSE you are not running is an opportunity lost," he said.

"You only have about 30-40 seasons in your farming life to make money and every one you are understocked means you are missing out on real value at the moment.

"So how do you make money out of sheep? Sheep income per hectare drives sheep profit.

"It doesn't matter how you make the money on a per hectare basis, as long as you make it the profits generally follow.

"Don't worry about what you are doing with your sheep, as long as you are doing it well.

"We don't see any difference in profitability between those focused on prime lamb production and those focused on an exclusively Merino flock.

"If you are doing it badly, you won't make much money, but if you are doing it well you will."

Mr Herbert said stocking rate drove income.

"The more sheep per hectare you can run, the more money you make," he said.

"Stocking rate is simply all about the numbers of sheep you are running on your farm.

"If you look at stocking rate directly against profit, there is a 70 per cent correlation, so in terms of the drivers of sheep profitability, stocking rate is number one.

"If you are serious about making money out of sheep, the first questions you need to ask are - is there the potential to run more sheep and what do I need to change to increase my carrying capacity?

"Once you have exhausted that thought process and all those options, then you move on to other things."

Mr Herbert said stocking rate was driven by rainfall and the length of the growing season.

"Growers need to consider what numbers of sheep they can sustain in regard to seasonal variations across years," he said.

"What is going to cause you the least amount of grief but gives the most opportunity to make money.

"Choosing a low stocking rate is a way to manage poor seasons, but you are still likely to be overstocked in the poor seasons and two thirds of the years you could be understocked.

"So there is a significant cost of lost opportunity in a large chunk of years if you approach stocking rate in that way.

"You have to pick a number of sheep to run and be aware there are always going to be years where you are running too many sheep.

"This is where the back door strategy comes into play and WA sheep producers have become very good at implementing this tactic.

"This is a written plan that articulates how you will manage your way through a poor season.

"It steps out the decisions and actions on week by week basis for a range of season breaks.

"For example, if it rains on May 1 and keeps raining you could run 11 DSE, but you are stuck with 8 DSE because that is what you are set up for.

"But if you get to May 28 and there is no rain at 8 DSE you may be slightly overstocked, so you buy in some grain to carry 500 DSE of capacity.

"If it doesn't rain by the end of June you could be overstocked significantly, so that is when you sell sheep or buy in more grain, or both.

"Everyone does that to some extent.

"The key is continually thinking ahead, being on the front foot and proactive.

"The tactics employed generally fall into one of two groups increasing carrying capacity or reducing feed demand.

"Time of lambing can play a significant role here."

Mr Herbert said there was huge demand for energy from a lambing ewe and in March or April there was usually no energy available from pastures so it came from the silo or the body fat of the ewe.

"That is OK, it works and people make money from it," he said.

"A July lambing is more in tune with energy supply from pastures.

"There is still a bit of a gap, but grain and body fat can still be used it just won't be as much as in the March-April period.

"Commonly in WA, we are lambing in the April, May, June period and the problem with this is that you have maximum grazing pressure and energy demand when the farm is least equipped to handle it.

"At this time you also have ewes in a State where there are few options in terms of grazing management, you can't move them around when they are about to lamb.

"If you are lambing in July, you have pretty much all of April and May to move sheep around if it hasn't rained."

An option that could be considered according to Mr Herbert is a three-week lambing period in July which could also lead to an ability to increase stocking rates.

"Research data has shown that within the first three weeks of joining in February, at least 85pc of ewes are pregnant and then it takes two weeks for the others to get in lamb," he said.

"Typically someone might lamb on July 1 for five weeks and finish on August 5.

"I am proposing to start on July 15 and lamb for three weeks and you are still finishing on August 5.

"But what has changed is that you have picked up two weeks of grace.

"And what is two weeks of not lambing in July worth from a flexibility point of view?

"There is less stress and more options, you have two more weeks to keep them in confinement or two weeks more to rotationally graze or defer grazing."

Mr Herbert noted that with a three-week lambing didn't produce as many lambs as a five week lambing.

Through management practices, such as getting less dries or increasing twin survival, the gap could be closed.

"The big gain, however, could be made through the potential to increase stocking rates," he said.

"If you run a July 1 lambing at 9.9 DSE - currently this equates to $508 a hectare gross margin.

"A 0.3 DSE increase in stocking rate has already made up the lambing percentage gap.

"The potential of moving lambing to a month later could be at least an additional DSE, which could be one way of capturing the true value of sheep at the moment."

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