4 South Island Deer

The South Island Deer Farm

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 2005/06 season were 540 mixed-age (MA) breeding hinds, 163 rising two-year (R2yr) hinds, 552 mixed-sex weaners, and 170 rising two-year and mature breeding/velvet stags. The 2005/06 stocking rate was 15.9 stock units per hectare.

Progeny from the breeding hinds which are not required as replacements in the breeding or velvet herds are sold for slaughter at 10 to 18 months, with final culling of replacements at the two-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 red deer from the United Kingdom and Eastern Europe.

Note: Stock unit (su) conversion rates were changed in 2004/05 to more accurately reflect the stock unit rates accepted and applied by the deer industry. Refer to table 1.1 for stock unit conversion rates used before and after this change.

Table 4.1: South Island Deer Model Summary, 2005/06

Effective area180 ha  
Opening stock wintered: R1yr stags276 hd
Breeding hinds (mixed-age)540 hdR2yr stags65 hd
R2yr hinds (mated)130 hdR3yr stags95 hd
R2yr hinds (unmated)33 hdMA and breeding stags10 hd
R1yr hinds276 hdTotal stock units wintered2 860 su

Key Points

  • Venison prices fell to new lows (average purchase price stag was $3.40 per kilogram in January) due to the continued large volume of venison to sell and the high New Zealand dollar.
  • Velvet markets showed no improvement over the $42 per kilogram average 2004/05 price until it was too late for most farmers to benefit in 2005/06.
  • Due to below average spending cash farm surplus rose to $14.91 per stock unit in 2005/06.
  • Profitability is forecast to improve in 2006/07 as prices for venison and velvet rise, due to the lower New Zealand dollar and the reduced number of stock available for processing.

Climatic Factors Affecting Production

Southern deer farmers enjoyed another mild winter in 2005. High stocks of supplementary feed and better than average pasture growth saw livestock emerge from the winter in ideal condition. Farmers used a variety of wintering systems that contained older hinds and stags off pasture for around 100 days in the winter period. This allowed weaners on rotations to utilise pasture. While weaner growth rates still struggle to exceed 80 to 100 grams per day over June to August, this system provided good pasture covers  (1800 plus kilograms dry matter per hectare) in the spring, allowing rapid liveweight gains.

Pasture growth remained ahead of normal until hinds were set-stocked for fawning in October, allowing adequate supplement to be made for the 2006 winter. In mid-October, cooler weather caused pasture growth in Southern areas to drop by 50 percent, putting pressure on feed covers in fawning blocks. Pasture growth did not recover until December. While some first fawning rising two-year hinds struggled, mixed-age (MA) hinds were able to handle the situation by mobilizing body fat. No effect on fawning percentage was noted. Mixed-aged hinds remained static at 87 percent fawns weaned to hinds mated, and rising two-year hinds weaning 72 percent fawns to stag.

Table 4.2: Key Parameters of the South Island Deer Model

 2002/032003/042004/052005/062006/07f
Effective area (ha)180180180180180
Opening deer stock units2 3252 3252 8322 8602 752
Stocking rate (su/ha)12.912.915.715.915.3
Fawning1     
Farm average (%)8485848484
Mixed-age hinds (%)8788868788
2-year-old hinds (%)7472747274
Velvet     
Farm average (includes re-growth but     
       excludes yearling velvet) (kg/stag)3013013.03.23.6
Mixed-age (kg/stag)4.04.04.04.34.2
3-year-old (kg/stag)3.03.03.02.93.0
2-year-old (kg/stag)1.81.81.81.81.8
Carcass weights     
Cull 2-year-old hinds (kg)5252525252
2-year-old stags (kg)6565656565
Yearling stags (kg)5757565655
      
Gross farm revenue ($)202 600151 851143 681142 508168 948
Net trading profit ($)83 60039 7107 83412 50040 198
Disposable surplus/deficit ($)–15 345–22 789–30 86362312 054

Note
1 Fawning percent is the breeding stock scanned in calf at balance date.
Symbol
f Forecast

An advantage of lower than normal pasture covers through early-summer was improved pasture quality. This resulted in improved fawn weaning weight of one to two kilograms on 2004/05.

Farmers reported relatively few animal health issues in deer this year. As normal there were isolated losses due to yersiniosis, fusiformis and lungworm. Internal parasites in deer are of increasing concern to some, given the recent publicity about drench resistance on sheep and beef farms. There are large gaps in the knowledge about parasite management of deer.

Over May 2006 killing space in the South Island became available allowing most farmers to kill any backlog of deer on hand. Whether this signifies the end of the capital stock kill remains unclear.

Given the good feed reserves, many have chosen to carry additional deer through the 2006 winter to kill at higher spring prices. This is likely to make killing space very tight again right through until Christmas.

Production Figures and Forecasts

Finishers reported no problems getting yearling stags to target slaughter weights by October/November. Carcass weights for yearlings averaged between 52 kilogram and 56 kilograms on surveyed farms. Very tight killing space allocations continued to affect farmers. Many killable deer were held on farms longer than desirable due to a lack of space, while the venison schedule fell away rapidly. Average purchase price for stags (55 to 65 kilograms) peaked at $5.60 per kilogram in late-September, dropping under $4.00 per kilogram in December and bottoming out at $3.40 in January/February. Holding these deer did not affect feeding levels of other stock classes, due to the favourable spring.

Some farmers were further penalised in spring for supplying deer for processing with mud dags on their legs and bellies. Deer wallow heavily in the spring to remove their winter coats. Mud dags formed during wallowing can cause bacterial contamination during processing at deer slaughter premises, resulting in chilled venison packs exploding during passage to Europe. To eliminate this risk, one processor freezes product from all muddy deer which is then consigned to lower value markets. Payment for these animals was reduced by $0.40 per kilogram, and in extreme cases muddy deer were refused processing and returned to suppliers. To prevent this some farmers installed on-farm washing systems, while others resorted to crutching deer. However, most methods proved largely ineffective, and stressful on both farmer and deer.

Financial Position of the Deer Farm

Review of 2005/06

Revenue

For the fourth consecutive year gross farm revenue dropped on deer farms. At $142,508 or $49 per stock unit in 2005/06, gross farm revenue was down slightly on the 2004/05 financial year. Revenues continue to reach new lows on deer farms, with the result being only half the gross farm revenue recorded in 2002/03, the last profitable year for deer farmers.

Farmers were cautious but had predicted a partial recovery in venison and velvet price over the 2005/06 year to lift gross farm revenue by 17 percent on 2004/05. However, low confidence levels and a need to improve profitability saw the capital stock cull continue. Combined with the strength of the New Zealand dollar against European markets, this cull saw a further decline in venison prices. Confidence in South Island deer farming remains low. Increases in other on-farm income are expected to counter the current poor financial returns.

Venison

Farmers were warned to expect a peak spring schedule for the average purchase price of stags of $5.60 per kilogram. This level was reached, but only for a period of a few weeks in late-September. The inevitable slide in the schedule price pre-Christmas began in October, with prices reduced to $3.40 per kilogram (a new record low) by late January. By the end of May positive currency movements had returned the venison schedule to $4.00 per kilogram, but this remained 22 percent down on the 10-year average for May. Part of this schedule message reflected the extraordinarily high production numbers being offered and was a clear signal that further stock was not required at this time, somewhat in tune with the message from industry leaders. However, the meat processing companies did commit to processing the very high numbers being offered, peaking at  more than 760 000 in the year ended March 2006, in order to meet the demand from clients downsizing or changing their farming practices on the back of sustained low returns.

Due to killing space restrictions, only 10 to 15 percent of weaners were processed before November, making the average schedule price over the season more important than the peak. In 2005/06 the average rising one-year stag netted $199 per head on farm, after deductions (levies, killing charges and cartage) of an average $20 per head. For a 56-kilogram stag carcass the average net price received was $3.55 per kilogram compared to $3.82 per kilogram in 2004/05 (down 7 percent).

Velvet

With killing space remaining tight, the much talked about velvet stag cull was restricted, meaning velvet weights and grades remained fairly constant over 2005/06. Prices improved late in the season; however, most farmers’ cash situations meant they did not have the luxury of holding velvet to take advantage of this lift. The 2005/06 average price on surveyed farms remained at the 2004/05 level of $42 per kilogram, compared with the reported pools’ average of $47 per kilogram for the season. Overall velvet contributed $24,518 (18 percent) to gross farm revenue.

Expenditure

Farmers expected deer farming to remain a tough proposition in 2005/06 and aimed to reduce spending to below 2004/05 levels. In spite of price rises in most farm inputs, cash farm expenditure was reduced by $17,671. Cash farm expenditure totalled $78,230, accounting for 56 percent of gross farm revenue in 2006.

A few deviations between years occurred in most cash farm expenditure categories. However, re-grassing
($0.83 per stock unit), fertiliser ($5.00 per stock unit) and lime ($0.31 per stock unit) expenditure was further cut back, bringing into question to what extent are assets on these farms being maintained? After fertiliser, feed costs ($4.09 per stock unit), fuel ($3.10 per stock unit) and animal health ($2.88 per stock unit) remain the largest cash farm expenses.

Figure 4.1: South Island Deer Farming Profitability Trends

Figure 4.1: South Island Deer Farming Profitability Trends

Symbol
f Forecast

Net Result

Due to farmers controlling spending well, the 2005/06 cash farm surplus was $42,653 ($14.91 per stock unit). This was sufficient to meet tax and modest drawings, but little was left for normal plant and machinery replacement or development.

Net trading profit was $12,500 in 2005/06.

The disposable surplus was $623, an increase of $31,486 from 2004/05 due to a reduction in maintenance expenditure rather than increased income.

In a repeat of last year’s trend, farmers again actively sought off-farm employment to buffer farm returns. Net income of $22,000 was earned off-farm in 2005/06, up $8,500 on 2004/05. This allowed farmers to improve their cash position by $22,623 over the year.

Overall, the hatches are battened down. Realising little income is coming in, farmers are spending very little, and topping up off-farm income in a variety of ways. No major development or plant replacement is taking place, nor will it until product prices improve substantially. The holding pattern continues as farmers attempt to “hang in” with the industry.

Forecasts for 2006/07

Revenue

Signs are emerging that the deer industry may be turning the corner. On the back of late-season improvements in venison and velvet prices, and freeing up of killing space in autumn, farmers are more optimistic than they have been in months. This is reflected in their forecast gross farm revenue for 2006/07, which rises to $168,948 ($61.38 per stock unit), representing a 19 percent improvement on 2005/06.

Venison

Most of the increase in forecast gross farm revenue can be attributed to a lift in the venison schedule. Farmers expect that the current improvement in venison prices over the same period 12 months ago will flow on to better average seasonal prices in 2006/07, and this will improve the value of yearling stags by $30 per head. A 56 kilogram carcass weight animal would then return $229 per head after deductions, from a gross schedule price of $4.45 per kilogram. This is well within the realms of possibility.

Velvet

Farmers are less optimistic that the velvet markets will improve, but do expect some relief over the year through a lower New Zealand dollar. Velvet weights and grades are expected to remain fairly static, although culling of some poorer performing stags may result in limited improvements. The average net velvet price is budgeted at $49 per kilogram in 2006/07. This is a 17 percent increase on 2005/06. But regardless, velvet prices remain very low when considering that in previous years prices regularly exceeded $100 per kilogram. Velvet will contribute $31,769 (20 percent) to gross farm revenue in 2006/07.

Expenditure

While a gross farm revenue increase in 2006/07 is predicted, farmers will aim to hold their inputs at 2005/06 levels until this is realised. They acknowledge that expenses such as fuel, freight and contracting charges will continue to increase, and have made some allowance for this by lifting cash farm expenditure from $27 per stock unit in 2006 to $29 per stock unit in 2006/07. Whether this will go far enough is yet to be seen.

Animal health is the only expense category where farmers believe they can make further savings (down 22 percent), with all the other expenses forecast to increase. Limiting spending on animal health to $2.24 per stock unit may put production under pressure if feed conditions become tight, but this will be reviewed if necessary.

Fertiliser and lime spending remains below maintenance levels at $5.77 per stock unit. However, phosphate reserves on deer farms remain sufficient to hold production.

Capital purchases will increase to $11,000 after a tight year in 2005/06. Development will remain minimal at $2,900. Drawings are also not forecast to increase beyond $34,000 as in 2005/06.

Net Result

Cash farm surplus is budgeted to improve to $65,292 in 2006/07 ($23.72 per stock unit), which, if achieved, represents a 53 percent improvement on 2005/06. This depends on increased sales of grass/grazing etc., but is realistic based on current venison market signals, providing spending can be contained.

Disposable surplus should be in positive territory at $12,054. Off-farm income is forecast to increase to a new high of $23,667, which, when added to the disposable surplus, gives net cash change of $35,721.

Issues and Trends

Unsustainable product prices (mainly venison) remain the major issue for South Island deer farmers. After four years of poor financial performances attributed to low prices, many mixed sheep/beef and deer farmers are now leaving the deer industry. This has continued the supply of capital stock to deer slaughter premises, which in turn has kept the venison market low.

Signs are emerging that the venison oversupply is nearing an end. Processors reported all venison being  absorbed by markets last year, which included unsold frozen stocks from the previous season. The annual kill estimated at 760 000 is unsustainable based on Deer Industry New Zealand’s survey results released in 2006. Farmers believe that as kill numbers drop, product will be directed out of lower value venison markets, and that this will positively impact on the average farm gate price.

Killing space also freed up to a degree in late 2006. A lack of space to kill deer has frustrated many farmers over the last three years. Most farmers have been able to kill the backlog of works deer held on-farm recently. However, some have chosen to hold these animals over to obtain better prices in the spring. There is some risk in this policy as the availability of space in spring is in no way guaranteed. It is expected deer slaughter premises will be near full capacity until Christmas, before any reduction in capital stock kill takes effect.

Compounding the issues of low prices and killing space in the last spring were deductions associated with presenting muddy deer for slaughter. Farmers firmly believe this is a processor issue and should be dealt with by reconfiguring plants to minimise contamination. Processors initially put responsibility back onto farmers to supply deer to an acceptable standard of presentation, but of late have started backing down on this issue. Deer slaughter premises have recently been converted across to hind leg hanging (“inverted dressing”) which is known to reduce the contamination problem. Some farmers believe that once the shortage of deer hits and a possible procurement war begins, muddy deer will no longer be an issue.

On-farm productivity remains fairly stagnant, despite the poor prices. Fawning percentages and growth rates show no real signs of improvement. Consultants believe that once those farmers wishing to quit the industry are gone, the remaining farmers will lift the industry’s average production statistics. Farmers have taken the opportunity to improve their herds’ genetics over the last few years by purchasing capital stock while prices have been low.

A major velvet development in 2006 was the merger of PGG and Wrightson velvet pools. The two pools under PGG Wrightson mean one company now handles approximately 70 percent of the nation’s velvet. This company has shown co-operation with the industry, responding to the New Zealand Deer Farmers’ Association’s (NZDFA) call in 2006 to hold lower grades off the market until later in the season, in an attempt to improve the prices for premium grades. PGG Wrightson are also set to introduce a farmer reserve pricing system for quantities of SA, A and B velvet in excess of 500 kilograms, to reduce the chance of weak selling under the pools. Separately, an industry working group (0800 VELVET) has just been formed to develop a new velvet marketing concept to give farmers more responsibility and control.

In 2006, farmers further diversified income on and off-farm through sheep and cattle trading, supplementary feed sales, dairy grazing, contracting, and further off-farm employment. In some cases these moves met with only limited success, with timing coinciding with a strong spring grass market for cattle, and an unforeseen fall in lamb prices.

Progress continues to be made on both the Johne’s and tuberculosis fronts by the deer industry. The Johne’s Research Group (JRG) has been active in educating farmers on managing Johne’s, and are now setting up a national database through deer slaughter premises for a future eradication programme.

A proposed change in how tuberculosis testing is charged for in special testing areas (annual herd testing areas) was carried by the New Zealand Deer Farmers’ Association. Animal Health Board levies will now be used to compensate farmers in special testing areas to the value of $2 per deer for every second herd test. This was met with some opposition from farmers outside special testing areas.

Confidence in the industry appears to be turning. As at June 2006, hind and weaner prices have risen in line with an improving schedule. To quote a venison marketing manager at a recent Deer Focus farm field day, “There will be a day of reckoning and it’s getting closer.” Farmers expect to see this in the second half of 2007.

Table 4.3: South Island Deer Budget

  2005/06  2006/07f 
 WholePerPerWholePerPer
 Farmhasufarmhasu
 ($)($)($)($)($)($)
Revenue      
Deer sales116 39564740.70132 89273848.28
Velvet124 51813626.2631 76917633.93
Other farm income4 000221.407 254402.64
Less      
Deer purchases2 405130.842 967161.08
Gross farm revenue142 50879249.83168 948 93961.38
Cash farm expenditure78 23043527.3580 83144929.37
Interest21 6251207.5622 6801268.24
Rent and/or leases000.00000.00
Cash farm surplus42 65323714.9165 29236323.72
Stock value adjustment–10 896–61–3.81–8 147–45–2.96
Minus depreciation19 2581076.7316 948946.16
Net trading profit12 500694.3740 19822323.72
Taxation1 69290.594 998281.82
Net trading profit after tax10 808603.7834 41919112.51
Allocation of funds      
Add back depreciation19 2581076.7316 948946.16
Reverse stock value adjustment10 896613.818 147452.96
Drawings34 06618911.9133 56018612.19
Principal repayments000.00000.00
Development2 416130.842 900161.05
Capital purchases3 857211.3511 000614.00
Disposable surplus/deficit62330.2212 054674.38
Other cash sources      
New borrowing000.00000.00
Off–farm income22 0001227.6923 6671318.60
Other cash income000.00000.00
Net cash change226231267.9135 72119812.98
Assets and liabilities      
Farm, forest and building      
   (opening)2 021 00011 228706.622 000 00011 111726.64
Plant and machinery (opening)128 38471344.89112 98362841.05
Stock valuation (opening)223 9881 24478.31213 0921 18477.42
Total farm capital2 373 37213 185829.822 326 07512 923845.11
Total debt opening255 0001 41789.16255 0001 41792.65
Equity2 118 37211 769740.662 071 07511506752.46

Note
1 Per stag su.
Symbol
f Forecast

Table 4.4: South Island Deer Expenditure

  2005/06  2006/07f 
 WholePerPerWholePerPer
 Farmhasufarmhasu
 ($)($)($)($)($)($)
Farm working expenses      
Permanent wages000.00000.00
Casual wages1 20670.421 22070.44
ACC24410.0934520.13
Animal health8 237462.886 156342.24
Breeding1 34070.471 34070.49
Electricity2 730150.952 800161.02
Feed (hay and silage)7 531422.63 8 000442.91
Feed (feed crops)20010.0720010.07
Feed (grazing)000.00000.00
Feed (other)3 975221.394 407241.60
Fertiliser14 296795.0014 580815.30
Lime88050.311 28070.47
Freight (not elsewhere deducted)54730.1960030.22
Re–grassing costs2 360130.832 800161.02
Weed and pest control1 38080.481 968110.72
Fuel8 864493.109 400523.42
Vehicle costs (excluding fuel)4 330241.51 4 300241.56
Repairs and maintenance4 614261.61 5 250291.91
Communication costs      
      (phone and mail)2 036110.71 2 123120.77
Accountancy2 259130.79 2 300130.84
Legal and consultancy29520.10 30020.11
Other administration84050.29 70540.26
Rates4 097231.43 4 145231.51
Insurance2 989171.05 3 033171.10
Water charges (irrigation)000.00 000.00
Other expenditure2 980171.04 3 579201.30
Cash farm expenditure78 23043527 80 83144929
Calculated ratios      
Economic farm surplus (EFS1)–24 609–137–8.60 1 50880.55
Cash farm expenditure/GFR256%   50%  
EFS/total farm capital–1.0%   0.1%  
EFS less interest and lease/equity–2.2%   –1.0%  
Interest + rent + lease/GFR15.6%   14.0%  
EFS/GFR–17.8%   0.9%  

Notes
1 EFS (see Table 3.4 for calculation formula).
2 Gross farm revenue.
Symbol
f Forecast

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