- The Canterbury/Marlborough breeding and finishing sheep and beef farm
- Key points
- Physical factors
- Financial position of the farm
- Issues and trends
- Budget
11 Canterbury/Marlborough breeding and finishing sheep and beef
The Canterbury/Marlborough breeding and finishing sheep and beef farm
This model comprises mainly sheep and cattle breeding and finishing farms in coastal Marlborough and Canterbury. Farms are located on the dry downs and plains, in irrigated areas, and in the higher rainfall upper plains. There is a very wide range in the farm size, stocking rate, stock class, and performance in this area.
Breeding ewe flocks with lamb finishing predominate, with cattle finishing and/or grazers on many properties. Some farmers also derive income from cash cropping, deer, beef breeding cows, farm forestry and off-farm sources.
The farm model is based on a breeding ewe flock finishing lambs, and has around 75 percent of the stock units as sheep, 20 percent as cattle and 5 percent others. Cattle returns are calculated on a beef finishing policy. The model percentage of income from different sources, performance levels, and product prices closely follow the averages of the monitored farms.
Table 11.1: Canterbury/Marlborough breeding and finishing sheep and beef model summary, 2005/06
| Effective area | 340 ha | Total stock units wintered | 3 871 su | |
| Opening stock wintered | Breeding cows | – | ||
| Breeding ewes | 2 668 hd | R1yr cattle | 131 hd | |
| Replacement ewe hoggets | 240 hd | R2yr cattle | 52 hd | |
| Other sheep | 25 hd | Other cattle | 30 hd |
Key points
- A mild dry winter and lambing minimised lamb deaths, giving a record 134 percent lambing.
- A cool late spring reduced lamb growth rates and weaning weights, compromising lamb sales.
- Summer and early autumn were very dry until heavy rains occurred in late April and May but recovery was too late for flushing ewes.
- Grass grub and porina damage to pastures has been the worst for a number of years, devastating young pastures.
- The major feature of the 2005/06 season was the crash in lamb prices. Down on 2004/05 by $5.00 in November/December, down $10.00 in January and as much as $20.00 by February.
Table 11.2: Key parameters of the Canterbury/Marlborough breeding and finishing sheep and beef model
| 2002/03 | 2003/04 | 2004/05 | 2005/06 | 2006/07f | |
|---|---|---|---|---|---|
| Effective area (ha) | 328 | 328 | 335 | 340 | 340 |
| Opening1 sheep stock units | 2 657 | 2 580 | 2 761 | 2 748 | 2 856 |
| Opening cattle stock units | 630 | 620 | 715 | 964 | 917 |
| Opening other stock units | 213 | 240 | 317 | 159 | 219 |
| Opening total stock units | 3 500 | 3 440 | 3 793 | 3 871 | 3 992 |
| Stocking rate (su/ha) | 10.7 | 10.5 | 11.3 | 11.4 | 11.7 |
| Ewe lambing (%) | 131 | 125 | 130 | 134 | 132 |
| Average lamb price ($/hd) | 63.00 | 60.00 | 61.50 | 52.13 | 55.78 |
| Average wool price ($/kg) | 3.48 | 3.14 | 3.06 | 2.76 | 2.82 |
| Total wool produced (kg) | 13 000 | 12 227 | 13 425 | 13 984 | 12 156 |
| Wool production (kg/ssu2) | 4.90 | 4.74 | 4.86 | 5.09 | 4.26 |
| Average R2yr steer ($/hd) | 830 | 780 | 775 | 639 | 621 |
| Average cull cow ($/hd) | 0 | 0 | 0 | 0 | 0 |
| Gross farm revenue ($) | 262 000 | 220 954 | 266 295 | 249 651 | 250 120 |
| Cash farm surplus ($) | 90 900 | 49 942 | 79 183 | 60 165 | 57 634 |
| Net trading profit ($) | 96 838 | 75 200 | 77 809 | 38 697 | 55 545 |
| Disposable surplus/deficit ($) | 4 300 | – 42 114 | 2 183 | – 25 405 | – 1 759 |
Note
1 Opening stock unit numbers from 2005/06 on include opening grazing
stock.
2 Sheep stock units.
Symbol
f Forecast
Physical factors
Winter 2005 was generally mild and dry giving good growth conditions. Pasture covers at lambing were good. Spring weather began well with a mild August/September lambing period. However, October was wet and cold. Late frosts occurred in November and early December, consequently there were few storm deaths during lambing. Lambing percentage in spring 2005 was the highest ever for this class at 134 percent. Early lambs grew well. However, with later born lambs, cool weather compounded by declining pasture quality resulted in disappointing growth rates from birth to weaning and average weaning weights were down.
In some areas, particularly South Canterbury, it was too wet to drill kale and swedes before Christmas. Any silage cut tended to be early. In Canterbury there was a surplus of silage and hay available for sale standing in December. Few supplements were made in North Canterbury and Marlborough.
Summer was dry from January, with drought effects varying by district. The area above the Rangitata Diversion Race (330m.a.s.l.) in Mid Canterbury was less affected. Hakataramea, Fairlie basin and coastal Marlborough were badly affected. Some farmers in South Canterbury weaned early. Farmers in Marlborough were forced to sell lambs early in December/January. Other drought prone coastal properties were forced to sell light store lambs on a falling market while higher rainfall areas were able to carry lambs longer. Restrictions on irrigation after Christmas limited lamb finishing on irrigated farms. Ewes in some areas were fed high levels of supplements, particularly silage and barley, with some “pad fed” with 100 percent silage and grain.
The benefit of larger areas of ryegrass pasture containing novel endophytes was demonstrated by the low incidence of ryegrass staggers.
Harvest on those farms with arable crops was generally good depending on irrigation and frost. Germination of ryegrass seed was good for both annuals as well as perennials. Clover yields were generally excellent. Wheat yields were below budget due to Barley Yellow Dwarf Virus carried by aphids over-wintering in the mild conditions. Barley yields depended on the availability of irrigation.
Grass grub and porina seriously attacked pastures in 2005/06. The pests have been the worst for a number of years, devastating young pastures. Causes were good pasture covers in early summer during moth and beetle flights, followed by dry conditions making pasture more vulnerable as the caterpillars and grubs grew in size.
Heavy rains in late April and May improved pasture cover, particularly where nitrogen had been applied but pasture recovery was too late for flushing ewes. Very good winter feed crop yields were measured by the A&P Association competitions where irrigation was available. Un-irrigated crop yields were poor but partially recovered during May and early June rainfalls.
Farmers have mated more hoggets in 2006/07 to try to increase lost revenue. The overall hogget lambing percentage in 2006 could be down as a result, but farmer expectations are that it will be similar to last year.
Sheep body condition varied at the beginning of winter 2006. Farmers who put replacement stock ahead of short-term cash returns from trading stock had good, well-grown hoggets. Ewes on some farms are lighter than desired as a result of summer feed shortages. Cattle growth rates over the year were generally slower due to a lack of suitable feed. Cattle numbers traded were down due to the slow spring growth and lack of feed and high purchase prices.
Figure 11.1: Mid Canterbury foothills rainfall
Financial position of farm
Review of 2005/06
Revenue
Gross farm revenue of $250,000, or $64.50 per stock unit, was down 6.2 percent on the 2004/05 gross of $266,000. Sheep sales less purchases was down $26,000 on the 2004/05 sales of $178,000. Sheep revenue per stock unit was down 14 percent from $64.00 per stock unit in 2004/05 to $55.00 in 2005/06.
The major feature of the season was the crash in lamb prices: down on last year by $5.00 per head in November/December, down $10.00 in January and down as much as $20 by February. On the monitored farms the average prime lamb was down $7.80 on last season, while store lambs were down $8.70 per head. The actual average lamb price of $52.00 was well down on the budget figure of $61.00.
Some farmers selling store lambs on contract achieved a better price than for heavier prime lambs. Thirty percent more store lambs and 16 percent less prime lambs were sold because of drought. The falling lamb schedule meant that some finishers buying store lambs in November/December lost money due to the fall in the schedule on these lambs. The season was not typical with more lambs held into the autumn because of slow growth rates and expectations of improving prices.
Average wool prices were down by 30 cents per kilogram to $2.76 per kilogram in 2005/06, but volumes were up by 4 percent or 559 kilograms following the mild winter. The net result was a decrease in wool income from $41,100 in 2004/05 down to $38,600 in 2005/06.
Cattle numbers on hand at the end of the year dropped due to a shortage of feed and higher prices, resulting in higher net revenue from cattle of $41,000 up from $30,000 the previous year.
Table 11.3: Canterbury/Marlborough breeding and finishing sheep and beef cash farm revenue
| 2002/03 ($) | 2003/04 ($) | 2004/05 ($) | 2005/06 ($) | 2006/07f ($) |
|
|---|---|---|---|---|---|
| Sheep sales less purchases | 167 300 | 144 262 | 177 960 | 151 836 | 171 159 |
| Cattle sales less purchases | 33 400 | 25 600 | 29 954 | 40 889 | 20 859 |
| Wool | 45 200 | 38 392 | 41 081 | 38 596 | 34 280 |
| Grazing income | 5 400 | 7 200 | 9 200 | 11 040 | 11 840 |
| Other income | 10 700 | 5 500 | 8 100 | 7 290 | 11 982 |
| Gross farm revenue | 262 000 | 220 954 | 266 295 | 249 651 | 250 120 |
Symbol
f Forecast
Expenditure
Cash farm expenditure in 2005/06 was $147,000 or $38.00 per stock unit, an increase of $2,300 from 2004/05.
Farm working expenses at 59 percent of gross farm revenue are up from 55 percent in 2004/05, a reflection of the lower revenue and increased expenditure. A large part of the expenditure for the year was incurred before farmers could adjust for the fall in income. Key increases in expenditure came from increases in electricity, shearing, fuel, and vehicle expenses. Capital and development expenditure on these farms included machinery replacement and improvements to make existing irrigation systems more efficient.
Net result
The net trading profit before tax has decreased dramatically. The 2005/06 profit of $38,700 is down $39,100 from a profit of $77,800 in 2004/05. This is a combined result of a drop of 6 percent in gross farm revenue, an increase of 1.6 percent in cash farm expenditure and stock value adjustment due to the reduction in cattle stock units carried. This is reflected in a net cash change of –$3,665 and increase in overdrafts.
Forecasts for 2006/07
Revenue
Gross farm revenue in 2006/07 is budgeted to be $250,100, similar to 2005/06. Sheep income is forecast to increase but wool and cattle income are expected to decrease.
Farmers are expecting lambing percentages to be similar or slightly lower than in 2005/06. However, industry commentators are less optimistic. They have noted that scanning percentages are lower and that a return to normal lambing conditions should be expected. The model forecast lambing percentage for 2006/07 is 132 percent. For each 5 percent drop in lamb survival the revenue drops by $6,670.
The average lamb price expectation for 2006/07 is $55.80, but this will depend on the exchange rate, lamb survival and competition from processors. Good lamb margins are anticipated for finishing winter lambs with store lamb prices around $1.45 per kilogram in early June.
Farmers are not optimistic about a return to the lamb prices of 2004 for 2006/07. They have budgeted for a $4.00 lift in prime lamb but a $3.30 lift in store lamb prices. However, as the margin between store and prime lamb in 2005/06 was $5.25 and many finishers lost money, the margin of $4.36 is unlikely to be acceptable. The $1 per head change in lamb prices changes the cash result in the model by around $2,900.
A small lift in wool price is expected but wool weights are budgeted to decrease due to the dry summer/autumn of 2006. Cattle sales less purchases will drop to about $20,800 as numbers carried over the winter return to normal levels.
Expenditure
Cash farm expenditure in 2006/07 is budgeted at $148,400, a slight increase from 2005/06. There will be some savings in feed, and repairs and maintenance, and increase in labour, fuel, and electricity.
Animal health will stay steady after rises in past years. Some farmers are questioning the high cost of using drench capsules and are moving back to oral drenches. Electricity is expected to rise by 16 percent due to a rise in cost per unit. With increases in area irrigated, more power will be used for pumping on irrigated properties. Fuel will rise due to a general rise in price per litre. This will flow on to contracting, freight, and servicing costs.
Capital costs are budgeted to drop with little replacement of machinery. This will rise again if cash surpluses allow. A lower exchange rate will lift the cost of machinery and vehicles. Some farmers are also moving to interest only payments on mortgages, with banks being flexible with debt repayment.
Net result
The net trading profit for 2006/07 is expected to be an improvement to $55,500, up from $38,700 in the 2005/06 year. After a small tax refund, an increase in drawings and a reduction in capital purchases a disposable deficit of $1,800 is projected.
Figure 11.2: Canterbury/Marlborough breeding and finishing sheep and beef profitability trends
Issues and trends
Lack of profitability is a major issue. If the lower lamb price persists it will reduce farmer returns, increase term debt and significantly reduce cashflow through country towns.
Farmers are concerned about the strategies of the competing meat processing companies. They feel that the schedule prices do not reflect the market, but rather the competition for through put. In 2005/06 unsustainable high prices were paid early in the season, but then the schedules were dropped more than expected into the new year.
Return on capital is minimal when looking at short-term cash profits and high land values. Farm values in the past have flattened off under similar circumstances with fewer sales. Unless profitability improves farm rents will need to reduce. Debt servicing varies significantly with overdraft rates ranging from 11 percent to 14 percent. Some of the variation in interest rates depends on other costs, such as overdraft service fee and account management fees that are added on to the base rate. In addition, hire purchase is becoming popular with rates as low as 7.9 percent on new machinery for those farmers in a position to be able to take advantage of the rates.
Management of hogget mating is improving. Some excellent hoggets were mated in Canterbury at 48 to 52 kilograms liveweight. Better farmers are concentrating on the job and achieving over 100 percent lambing as a result.
Industry commentators note that farmers are now good at making decisions with drought management by reducing stock demand or increasing supplements, but may not be so well practised at controlling a surplus and maintaining feed quality in wet years.
Deer farming policies have changed. Deer breeding hinds have been the least profitable enterprise on these farms. Rather than selling all hinds on a low market, farmers have not been replacing deaths and culls. Remaining hinds have been mated to a Wapiti or Elk terminal sire. Finishers have managed to retain margins of around $100 and may take what is effectively a capital gain if venison prices lift this season.
Demand for winter grazing for dairy stock is up. More heifers were reared but exports of dairy heifers failed and winter feed availability was reduced by drought. As a result Canterbury prices for grazing dry cows are around 20 cents per kilogram dry matter or $17 per week, and $6.50 to $7.00 for heifers. Agents, however, are taking up to 10 percent commission.
While overall shearing costs are up the decision about which shearing policy to adopt depends on the management system adopted. For example, while some farmers prefer second shearing to reduce numbers of cast ewes, composite breeds may not have the staple length for second shearing, and farmers will shear post-mating for improved lamb birth weight.
Sheep breed change is continuing towards composites of traditional New Zealand and exotic breeds. Farmers are looking for a quick genetic improvement. However, as with changes to Coopworths and Perendales in the past, the new breeds must suit the environment and the management system, and must be fed to express their genetic merit. Replacements should be carefully selected and rams purchased from a big genetic base. Poor performing composites are likely to be the result of poor management.
Sheep performance is improving steadily with top farmers in this class lambing above 140 percent. Farmers are striving to do better, but wondering how to even maintain profitability at lower product prices. Farmers are more aware of drench resistance among internal parasites and they are more often making decisions about treatment based on information such as faecal egg counts. There is some confusion about competing fertiliser products. There are more products available but they are not necessarily accompanied by hard scientific information.
There is still an enormous choice of ryegrass cultivars. With the merger of Agricom, Wrightson and Pyne Gould Guinness, the number of cultivars is likely to halve but be replaced with additional novel endophyte varieties. Clover root weevil has been detected in the South Island but has not registered as a threat among farmers. Similarly, varroa bee mite is a looming threat that could reduce pollination of crops and clover.
Farming women are finding life no easier with higher fuel costs, isolation, increasingly expensive education and poor telecommunications in many areas.
While the outlook is pessimistic, the returns and cash surpluses are significantly better than was the case 10 years ago, and farmers are in a much better financial situation to weather the lower prices. The last few years have been good and farmers may find it tough to reduce their discretionary expenditure, but most have a modest debt loading in comparison to the total farm asset.
Table 11.4: Canterbury/Marlborough breeding and finishing sheep and beef budget
| 2005/06 | 2006/07f | |||||
|---|---|---|---|---|---|---|
| Whole farm ($) | Per ha ($) | Per su ($) | Whole farm ($) | Per ha ($) | Per su ($) |
|
Revenue | ||||||
| Sheep | 158 731 | 467 | 57.77 | 174 609 | 514 | 61.14 |
| Wool | 38 596 | 114 | 14.05 | 34 280 | 101 | 12.00 |
| Cattle | 79 247 | 233 | 119.35 | 63 748 | 187 | 112.04 |
| Grazing income | 11 040 | 32 | 46.00 | 11 840 | 35 | 34.02 |
| Other farm income | 7 290 | 21 | 1.88 | 11 982 | 35 | 3.00 |
| Less | ||||||
| Sheep purchases | 6 895 | 20 | 2.51 | 3 450 | 10 | 1.21 |
| Cattle purchases | 38 358 | 113 | 57.77 | 42 889 | 126 | 75.38 |
| Gross farm revenue | 249 651 | 734 | 64.50 | 250 120 | 736 | 62.66 |
| Cash farm expenditure | 147 446 | 434 | 38.09 | 148 391 | 436 | 37.17 |
| Interest | 34 600 | 102 | 8.94 | 36 655 | 108 | 9.18 |
| Rent and/or lease | 7 440 | 22 | 1.92 | 7 440 | 22 | 1.86 |
| Cash farm surplus | 60 165 | 177 | 15.54 | 57 634 | 170 | 14.44 |
| Stock value adjustment | – 7 370 | – 22 | – 1.90 | 10 144 | 30 | 2.54 |
| Minus depreciation | 14 098 | 41 | 3.64 | 12 233 | 36 | 3.06 |
| Net trading profit | 38 697 | 114 | 10.00 | 55 545 | 163 | 13.91 |
| Taxation | 16 208 | 48 | 4.19 | – 719 | – 2 | – 0.18 |
| Net trading profit after tax | 22 489 | 66 | 5.81 | 56 263 | 165 | 14.09 |
Allocation of funds | ||||||
| Add back depreciation | 14 098 | 41 | 3.64 | 12 233 | 36 | 3.06 |
| Reverse stock value adjustment | 7 370 | 22 | 1.90 | – 10 144 | – 30 | – 2.54 |
| Drawings | 41 803 | 123 | 10.80 | 47 362 | 139 | 11.86 |
| Principal repayments | 5 500 | 16 | 1.42 | 0 | 0 | 0.00 |
| Development | 2 820 | 8 | 0.73 | 2 380 | 7 | 0.60 |
| Capital purchases | 19 240 | 57 | 4.97 | 10 370 | 31 | 2.60 |
| Disposable surplus/deficit | – 25 405 | – 75 | – 6.56 | – 1 759 | – 5 | – 0.44 |
Other cash sources | ||||||
| New borrowing | 19 240 | 57 | 4.97 | 0 | 0 | 0.00 |
| Off–farm income | 2 500 | 7 | 0.65 | 2 500 | 7 | 0.63 |
| Other cash income | 0 | 0 | 0.00 | 0 | 0 | 0.00 |
| Net cash change | – 3 665 | – 11 | – 0.95 | 741 | 2 | 0.19 |
Assets and liabilities | ||||||
| Farm, forest & building (opening) | 2 674 980 | 7 868 | 691.12 | 2 684 220 | 7 895 | 672.40 |
| Plant and machinery (opening) | 93 987 | 276 | 24.28 | 79 889 | 235 | 20.01 |
| Stock valuation (opening) | 304 671 | 896 | 78.72 | 297 301 | 874 | 74.47 |
| Total farm capital | 3 073 638 | 9 040 | 794.12 | 3 061 410 | 9 004 | 766.89 |
| Total debt opening | 395 000 | 1 162 | 102.05 | 412 740 | 1 214 | 103.39 |
| Equity | 2 678 638 | 7 878 | 692.07 | 2 648 670 | 7 790 | 663.49 |
Symbol
f Forecast
Table 11.5: Canterbury/Marlborough breeding and finishing sheep and beef expenditure
| 2005/06 | 2006/07f | |||||
|---|---|---|---|---|---|---|
| Whole farm ($) | Per ha ($) | Per su ($) | Whole farm ($) | Per ha ($) | Per su ($) |
|
Farm working expenses | ||||||
| Permanent wages | 12 326 | 36 | 3.19 | 13 258 | 39 | 3.32 |
| Casual wages | 2 441 | 7 | 0.63 | 2 848 | 8 | 0.71 |
| ACC | 1 582 | 5 | 0.41 | 3 202 | 9 | 0.80 |
| Animal health | 12 015 | 35 | 3.11 | 11 894 | 35 | 2.98 |
| Breeding | 777 | 2 | 0.20 | 773 | 2 | 0.19 |
| Electricity | 6 650 | 20 | 1.72 | 7 714 | 23 | 1.93 |
| Feed (hay and silage) | 7 343 | 22 | 1.90 | 6 902 | 20 | 1.73 |
| Feed (crops) | 0 | 0 | 0.00 | 0 | 0 | 0.00 |
| Feed (grazing) | 1 692 | 5 | 0.44 | 858 | 3 | 0.22 |
| Feed (other) | 1 031 | 3 | 0.27 | 824 | 2 | 0.21 |
| Fertiliser | 25 520 | 75 | 6.60 | 25 213 | 74 | 6.32 |
| Lime | 1 584 | 5 | 0.41 | 1 777 | 5 | 0.45 |
| Farm forestry costs | 151 | 0 | 0.04 | 125 | 0 | 0.03 |
| Freight (not elsewhere deducted) | 4 303 | 13 | 1.11 | 4 088 | 12 | 1.02 |
| Re-grassing costs (contractors) | 6 696 | 20 | 1.73 | 6 364 | 19 | 1.60 |
| Shearing costs | 13 962 | 41 | 5.09 | 13 780 | 41 | 4.83 |
| Weed and pest control | 6 150 | 18 | 1.59 | 5 787 | 17 | 1.45 |
| Fuel | 8 959 | 26 | 2.32 | 9 676 | 28 | 2.43 |
| Vehicle costs (excluding fuel) | 6 156 | 18 | 1.59 | 6 217 | 18 | 1.56 |
| Repairs and maintenance | 10 720 | 32 | 2.77 | 9 572 | 28 | 2.40 |
| Communication costs (phone and mail) | 1 500 | 4 | 0.39 | 1 522 | 4 | 0.38 |
| Accountancy | 2 652 | 8 | 0.69 | 2 493 | 7 | 0.62 |
| Legal and consultancy | 959 | 3 | 0.25 | 998 | 3 | 0.25 |
| Other administration | 1 440 | 4 | 0.37 | 1 450 | 4 | 0.36 |
| Rates | 5 179 | 15 | 1.34 | 5 282 | 16 | 1.32 |
| Insurance | 3 715 | 11 | 0.96 | 3 752 | 11 | 0.94 |
| Water charges | 843 | 2 | 0.22 | 872 | 3 | 0.22 |
| Other expenditure | 1 100 | 3 | 0.28 | 1 150 | 3 | 0.29 |
| Cash farm expenditure | 147 446 | 434 | 38.09 | 148 391 | 436 | 37.17 |
Calculated ratios | ||||||
| Economic farm surplus (EFS1) | 19 001 | 56 | 4.91 | 38 025 | 112 | 9.53 |
| Cash farm expenditure/GFR2 | 59% | 59% | ||||
| EFS/total farm capital | 0.6% | 1.2% | ||||
| EFS less interest & lease/equity | – 0.9% | – 0.2% | ||||
| Interest+rent+lease/GFR | 16.8% | 17.6% | ||||
| EFS/GFR | 7.6% | 15.2% |
Notes
1 EFS (or Earnings before interest and tax) is calculated as follows:
gross farm revenue plus change in livestock values less working expenses less
depreciation less wages of management (WOM). WOM are calculated as follows:
$31,000 allowance for labour input plus 1% of total capital as managerial
reward. An upper limit for WOM of $75,000 has been set.
2 Gross farm revenue.
Symbol
f Forecast
Contact for Enquiries
Farm Monitoring Programme Manager
Monitoring and Evaluation
MAF Policy
PO Box 2526
Wellington
NEW ZEALAND
Phone: +64 4 894 0623
Fax: +64 4 894 0741
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