South Island Deer

Model Description

This model represents the deer farms of Southland and South Otago. It is based on a farm running deer only. Opening stock numbers for the 2003/04 season were 540 mixed age breeding hinds, 130 R2yr hinds, 550 mixed sex weaners, and 175 R2yr and mature breeding/velvet stags. The 2003/04 stocking rate was 12.9 su/ha.

Progeny from the breeding hinds, which are not required as replacements in the breeding or velvet herds, are sold for slaughter at 10-18 months, with final culling of replacements at the 2-year-old stage.

The model is based on running predominantly red hinds in the breeding herd, with hybrids used as terminal sires. The hind herd is characterised by a blending of some of the recently imported strains of red deer from the United Kingdom and Eastern Europe.

Table 1: The Model in Summary 2003/04

Effective area	180 ha
Opening stock wintered:		R1yr stags	275 hd
Breeding hinds (mixed age)	540 hd	R2yr stags	60 hd
R2yr hinds (mated)	130 hd	R3yr stags	35 hd
R2yr hinds (unmated)	0 hd	MA and breeding stags	80 hd
R1yr hinds	275 hd	Total stock units wintered	2,325 su

Table 2: Key Parameters

	2000/01	2001/02	2002/03	2003/04	2004/05f
Effective area (ha)	180	180	180	180	180
Opening deer stock units	2,141	2,247	2,328	2,325	2,338
Stocking rate (su/ha)	11.9	12.5	12.9	12.9	13.0
Fawning (%):¹
Farm average	81	84.5	84	85	85
Mixed age hinds	84	87	86.5	88	88
2 year-old hinds	70	74	74	72	74
Velvet (kg/stag):
Farm average (includes re-growth but excludes yearling velvet)	2.95	3.05	3.05	3.05	3.05
Mixed age	3.9	4.0	4.0	4.0	4.0
3 year-old	2.9	3.0	3.0	5.3	3.0
2 year-old	1.8	1.8	1.8	1.8	1.8
Carcass weights (kg):
Cull 2 year-old hinds	52	52	52	52	52
2 year-old stags	65	65	65	65	65
Yearling stags	57	57	57	54	53
Gross farm revenue ($)	235,650	271,000	202,600	151,851	163,561
Cash farm surplus ($)	119,150	154,300	83,600	39,710	51,527
Net trading profit ($)	125,700	154,900	66,600	23,670	36,293

¹Fawning % - breeding stock scanned in calf at balance date

Key Points

Velvet and venison prices dropped to all-time lows during 2003/04, reducing the gross farm revenue on southern deer farms to $65/su, a 25% decrease from 2002/03.
Farmers focused on reducing farm working expenses by 9% compared with 2003/04, but they still accounted for 62% of gross farm revenue.
Full recovery in the venison market is not expected to occur for 18 months. However, gross farm revenue is forecast to improve by $4/su in 2004/05.
Low returns have not yet resulted in deer farmers exiting the industry. However, farmers indicate that if profitability does not improve over the next 12 months, sheep are likely to increasingly replace deer on mixed farms.

Physical Factors

Despite snow in the early stages of the winter, 2003 was drier than normal. The dry conditions allowed pasture covers to build up over winter, with brassica crops in particular benefiting from the unseasonable weather. Utilisation of pasture and crops was high, and stock remained in good condition, setting most properties up well for spring.

A warm September promoted early spring pasture growth, but a cold southerly blast containing snow in early October put feed supplies under pressure for the rest of the spring. Pasture covers in fawning paddocks were often well below normal, affecting fawn survival and early lactation growth rates on some properties.

Spring weaning weights for stags were reduced in an attempt to beat the sliding venison schedule. The peak schedule occurred in the third week of September and lasted only 2 weeks before declining, resulting in farmers killing remaining animals at carcass weights well short of their genetic potential. Southern processors report that while the average carcass weight of deer killed over the 2002 and 2003 seasons had not changed, in the 2003 kill, the average yearling stag now falls in the 45-50 kg carcass weight range, compared with 50-55 kg 2 years ago.

Trends in fawning percentages varied between mixed-age and first fawners, with mixed-age hinds recording a 1% increase in fawning compared with 2002, achieving 87.5%. Rising 2yr hinds averaged only 71.5%, with large numbers being dry. This is mainly attributed to the dry autumn and the resulting failure of R2yr hinds to reach the required liveweight for successful ovulation.

Over December and January most areas of Southland and Otago received less than half of their mean annual rainfall. This, combined with persistent strong nor' west winds, depleted soil moisture to levels not seen since the 1960s. The bonus from the dry conditions on farms that are normally summer damp was a second successive season of outstanding clover growth.

As a result of the drought, production losses were experienced in fawn weights and hind condition at weaning. Fawn weaning weights were mixed, with many farmers reporting a larger tail-end than normal. Overall, the average weaner stag weight was estimated to be down about 5 kg/hd.

Although autumn pasture growth was more favourable, the lost ground was generally not made up, and it is likely that the 2004 peak yearling stag kill will be delayed by 15-20 days.

Since the drought broke in February 2004, rainfall has been well above average and pasture growth has been excellent. Hinds picked up condition rapidly after weaning, and high conception rates are expected. A downside of the rapid pasture growth was an increased incidence of lungworm in weaners, but otherwise animal health was generally good. However, it is becoming apparent that Johne's disease is increasing in prevalence on deer farms.

Farms are entering the winter with slightly below average pasture and crop covers, but due to the forced cleanout of pastures during the dry summer, feed quality is excellent. The shortage of hay and silage made on-farm was of concern, but in late autumn/early winter, large amounts of supplement have been advertised for sale. While farmers are currently holding off, they will buy-in feed later if necessary.

Financial Factors

2003/04 Review

Revenue

Following a 25% decrease in gross farm revenue in 2002/03, revenues declined by a further 25%, to reach an all-time low of $151,851 ($65.33/su). This $50,774 decrease reflects the significant reductions in both venison and velvet prices.

Venison

The venison schedule reached a spring 2003 peak of $5.80-$6/kg, followed by a sharp decline in late October. By the beginning of the 2004 calendar year, the schedule had fallen to $4.12/kg. This is the lowest price in real terms on record.

The model farm experienced an 18% decrease in venison revenue in 2003/04, to $120,395, compared with $146,785 in 2002/03. The average net price achieved for yearling stags was $230, compared with $260 in 2002/03. Farmers had limited opportunities to kill animals near the peak schedule without reducing slaughter weights.

Velvet

The average velvet price fell from $100/kg in 2002/03 to a season average over all grades of $55/kg in 2003/04. Prices fell rapidly early in the season and had bottomed out by the time the bulk of velvet was being sold. Super A grades struggled to make $80/kg, while there was little difference between B, C and D grades, at between $50/kg and $65/kg.

The model farm experienced a 45% decrease in revenue from velvet in the 2003/04 season, with a total revenue of $32,450, compared with $58,840 in 2003/04.

Expenditure

In response to reduced returns, South Island deer farmers reduced cash farm expenditure. The model farm experienced a 9% decrease in cash farm expenditure, bringing total expenditure to $93,891 in 2003/04, compared with $103,220 in 2002/03. This accounts for 62% of gross farm revenue, which is a 22% increase from 51% the previous year.

Key decreases in expenditure occurred in breeding (38%), casual wages (33%), repairs/maintenance (32%), animal health (20%), feed (12.5%), fertiliser (10%), and freight (7%). Casual wages expenditure dropped as a result of less labour being employed, while reduced fertiliser expenditure reflected price adjustments to inputs from the high New Zealand dollar (NZD), rather than decreased usage.

Increases in expenditure occurred in re-grassing/contractors (10%), communication costs (9.5%), and rates (10%).

Tax due in 2003/04 was down 69.5% on the $38,000 paid in the 2002/03 year. Provisional tax due in 2003/04 was significantly higher than the assessed tax liability, resulting in a significant increase in estimated tax payments due. The model farm reassessed its tax liability during the 2003/04 year (to reflect actions taken by South Island deer farmers), resulting in a tax payment of $11,590.

Development costs and capital purchases decreased significantly during 2003/04, dropping 65% and 46%, respectively, as most deer farmers reduced on-farm development and capital purchases as revenue levels decreased.

As a direct result of the second consecutive year of lower returns, many South Island deer farmers refinanced their mortgages, reducing their annual principal repayments. To reflect this trend, the model farm refinanced repayment levels, and paid $2,309 in principal repayments in 2003/04, compared with $4,000 in 2002/03.

Personal drawings increased in the 2003/04 season to $39,500, compared with $38,000 in 2002/03.

Net Result

Cash farm surplus levels decreased significantly for the second year in a row in 2003/04, to $39,710, compared with $83,655 in 2002/03. This 52% decrease was due to both the venison and velvet markets being severely depressed, a rare occurrence over the deer industry's short history.

The net trading profit before tax decreased by 65%, to $23,670. Off-farm income was generated on 60% of the farms monitored during the 2003/04 season, representing an average off-farm income of $3,500, or a 12.5% decrease from 2002/03. The net cash change for the model farm for 2003/04 was -$19,289.

South Island Profitability Trends

2004/05 Forecast

Revenue

Farmers expect both the venison and velvet markets to show signs of recovery during 2004/05. This recovery will lift gross farm revenue to $163,561 in the 2004/05 year, an 8% increase on the 2003/04 gross farm revenue.

Venison

Farmers are slightly more optimistic heading into the 2004/05 season, anticipating the venison schedule to average $4.50-$5/kg in 2004/05. While no spring contracts have been released yet, it is thought these will peak at $6/kg, similar to spring 2003. Farmers hope that reports of little product being in storage in New Zealand are accurate, and that this will slow the rapid slide in the spring schedule that has occurred over the last two seasons. Total venison revenue for 2004/05 is expected to increase 7.5% to $129,355.

Price expectations for R1yr stags sold to slaughter are up $14/hd, to $244/hd.

Velvet

The model budget velvet revenue is forecast to be $35,406 in 2004/05. Farmers are expecting the average velvet price across all grades to lift by about $5/kg, to $60/kg, in 2004/05.

Expenditure

Cash farm expenditure in 2004/05 is forecast to decrease slightly by 1% to $92,734, compared with $93,891 in 2003/04. This represents 57% of gross farm revenue. Farmers are keen to reduce their expenditure, but further reductions in working expenses will be difficult to achieve, particularly with fuel and compliance costs on the rise.

Key areas of expenditure forecast to decrease include vehicle costs, excluding fuel (21%) and repairs and maintenance (15%). Fertiliser costs are forecast to increase 8% in 2004/05 in anticipation of NZD fluctuations. Other key areas forecast to increase include fuel and rates, up 12% and 2%, respectively.

Mortgage interest rates are expected to increase on average, and are budgeted at 8% pa. Development expenditure is forecast to remain the same as in 2003/04, and capital purchases are forecast to decrease by 21% to $5,500.

Net Result

The net trading profit before tax is forecast to increase by $12,623 in 2004/05, as a result of higher venison and velvet returns, and a small decrease in cash farm expenditure. The model predicts an improvement in disposable surplus of $20,113, to a small deficit of $2,676.

The net cash change is forecast to return to a positive $824 in 2004/05.

Issues and Trends

The industry has been focusing on improving the size of the venison market. Year-round access has been gained to France, and ready-to-eat venison products are now available in some New Zealand supermarket chains. Farmers feel promotion of venison in the local market has been disappointing.

Availability of killing space has been an additional issue within the venison market. With the peak schedule price lasting only a matter of weeks, farmers are doing all they can to kill as many deer in this window as possible. Ways of achieving this include killing yearlings at lighter carcass weights, or carrying deer through a second winter. In addition to the extra capital stock being killed last season, peak space between September and November was over-subscribed, further affecting farmers' profitability. It has also affected the weaner price finishers are prepared to pay. If they cannot guarantee getting their animals killed on time, they carry more risk. They then reduce that risk by paying less for young replacements.

Farmers have a good understanding of how velvet is bought and sold in US currency. However, the appreciation of the NZD against the USD does not fully cover the decline in price received at the farm gate. Farmers are concerned that while the value of the NZD has fallen through the autumn, the price of velvet has not risen accordingly. At current prices, velvet production is unsustainable for farmers with average quality herds. Farmers are seriously considering culling a higher number of velvet stags in 2004/05.

Velvet producers face further uncertainty concerning velvet harvesting techniques. The New Zealand Food Safety Authority (NZFSA) considers that the analgesic drugs lignicane and xylaziene, which are used at present, leave unacceptable residues in the velvet. It was hoped that compression analgesia could be used to substitute for the drugs, but the animal welfare implications of this technique have not yet been properly established. The NZFSA has given the industry a 5-year period in which to find suitable alternatives to the drugs used at present.

To compensate for the expected continuation of low prices over the coming season, deer farmers have planned to further diversify their income in the forecast year. The most popular options include off-farm work or other businesses, dairy grazing, selling feed, and trading cattle. Some farmers have also experimented with finishing store lambs and ostriches, with mixed success. While these farmers are deer farmers at heart, they plan to increase diversification until such time as deer profitability returns to acceptable levels.

Development of deer units on mixed livestock farms has stalled. Most of these deer units are now running status quo stock numbers, with no plans for further expansion until venison prices recover. In fact, many are considering cutting back deer numbers and reverting to sheep, but most have decided to give the deer one last chance to perform this year. If there is no improvement, many farmers indicate they will exit the industry.

The effect of low prices has been compounded by an increase in compliance costs and taxes. For most farms, the cost of killing a venison animal and covering levies accounts for $15/hd. Out of around $250/hd gross, that is 6%. Tb testing costs deer farmers $2/hd, and Animal Health Board tag requirements for fawns are nearly $4/hd. The combination of increased border control fees on exporters, local body rates based on capital values, stricter agrichemical storage regulations, on-farm fuel storage requirements, and compulsory veterinary consultations, is leaving deer farmers feeling over-regulated.

Little headway continues to be made in fawning percentages, particularly in first calving hinds. Hill country properties with more natural calving conditions are achieving better results in mixed age hinds, but have problems growing out their young hinds. The trend of hinds being moved back into the hill country continues slowly. However, the high prices being asked for this land, and strong competition from sheep and beef systems, have slowed this progression.