- The Otago dry hill sheep and beef farm
- Key points
- Physical factors
- Financial position of the farm
- Issues and trends
- Budget
12 Otago dry hill sheep and beef
The Otago dry hill sheep and beef farm
This model represents 400 farms in the Otago area. These farms range in size from 500 to 4000 hectares and are spread from Kurow in North Otago to Millers Flat in Central Otago, with the main concentration being in the Middlemarch and inland Palmerston areas. The model size is 2000 hectares.
These farms are characterised by systems that cope with dry summers and long, cold winters. The rainfall is 400 to 700 mm per annum, but drought days number over 100 per year.
These properties are predominantly hill with a small area of valley floor. Some have a small area of irrigated valley floor. They differ from downland farms in that they are more extensive, are at a higher altitude, sell more store stock, have lower stocking rates and stock performance, and have more stock units.
Table 12.1: Otago dry hill sheep and beef model summary, 2005/06
| Effective area | 2 000 ha | Total stock units wintered | 6 518 su | |
| Opening stock wintered | Breeding cows | 84 hd | ||
| Breeding ewes | 4 653 hd | R1yr cattle | 56 hd | |
| Replacement ewe hoggets | 1 130 hd | R2yr cattle | 37 hd | |
| Other sheep | 201 hd | Other cattle | 3 hd |
Key points
- The lambing percentage at 123 percent was the highest recorded in the history of this model, up 6 percent from 2004/05.
- The average lamb price in 2005/06 was $46 per head, a $14.20 per head decrease (24 percent) from $60.19 per head the previous year.
- Below-average levels of supplementary feed were made this year due to a dry summer and early autumn.
Table 12.2: Key parameters of the Otago dry hill sheep and beef model
| 2002/03 | 2003/04 | 2004/05 | 2005/06 | 2006/07f | |
|---|---|---|---|---|---|
| Effective area (ha) | 2 000 | 2 000 | 2 000 | 2 000 | 2 000 |
| Opening sheep stock units | 5 675 | 5 630 | 5 548 | 5 590 | 5 654 |
| Opening cattle stock units | 971 | 925 | 990 | 928 | 913 |
| Opening total stock units | 6 646 | 6 555 | 6 538 | 6 518 | 6 567 |
| Stocking rate (su/ha) | 3.3 | 3.3 | 3.3 | 3.3 | 3.3 |
| Ewe lambing (%) | 110 | 110 | 117 | 123 | 120 |
| Average lamb price ($/hd) | 50.94 | 45.87 | 60.19 | 46.01 | 49.09 |
| Average wool price ($/kg) | 4.95 | 4.44 | 3.84 | 3.46 | 3.66 |
| Total wool produced (kg) | 24 900 | 24 073 | 26 243 | 27 065 | 26 062 |
| Wool production (kg/ssu1) | 4.39 | 4.28 | 4.73 | 4.84 | 4.61 |
| Average R2yr steer ($/hd) | 818 | 664 | 732 | 715 | 780 |
| Average cull cow ($/hd) | 510 | 415 | 550 | 559 | 524 |
| Gross farm revenue ($) | 409 430 | 372 546 | 459 596 | 394 661 | 403 212 |
| Cash farm surplus ($) | 133 915 | 89 515 | 180 243 | 111 499 | 123 099 |
| Net trading profit ($) | 119 726 | 52 225 | 174 191 | 88 551 | 102 590 |
| Disposable surplus/deficit ($) | 25 915 | – 2 735 | 66 287 | 14 359 | 31 180 |
Note
1 Sheep stock unit.
Symbol
f Forecast
Physical factors
Otago dry hill properties entered the 2006 autumn with very low pasture covers due to an exceptionally dry summer and autumn. Between 100 to 200 millimetres of rain fell between 25 April and 1 June, which revived many dryland brassica crops giving expectations of those crops producing average yields of around 4000 to 5000 kilograms dry matter per hectare as opposed to virtually nothing. Supplementary feed reserves were adequate as a result of a carry over from the previous winter.
A mild and favourable spring in 2005 combined with excellent ewe condition and supplement reserves allowed farmers to exceed their lambing percentage expectations by 2 percent to achieve 123 percent, a new record high following the very good 2004/05 result of 117 percent.
On average 40 percent of ewe hoggets were mated in 2004/05. Their hogget lambing percentage was 57 percent for hoggets mated. In 2005/06 the hogget condition and liveweight were down on 2004/05 due to the poor autumn, so only 20 percent have been mated. Farmers prefer to grow out the lighter hoggets rather than mate them.
Wool production lifted to 4.84 kilograms per sheep stock unit in 2005/06 from 4.73 kilograms per sheep stock unit. It is expected to reduce to 4.6 kilograms per sheep stock unit in 2006/07 due to lighter ewe weights and lower winter feed levels.
Farmers expect to finish 65 percent of their lambs in 2006/07, which is similar to the 2005/06 year.
Financial position of the farm
Review of 2005/06
Revenue
Gross farm revenue decreased to $395,000 ($60.55 per stock unit) in 2005/06 from $460,000 ($70.30 per stock unit) in 2004/05. This is a direct result of a $14.20 per head decrease in lamb price, and is in spite of a 6 percent increase in lambing percentage. Sheep revenue including wool less purchases was $62.14 per sheep stock unit compared with $71.56 per sheep stock unit in 2004/05. Cattle revenue was $45.90 per cow stock unit, compared with $57.49 per cow stock unit in 2004/05. Stock units remained similar at 6518.
Wool revenue contributed 24 percent of total gross farm revenue in 2005/06, an increase from 22 percent in 2004/05. However, total wool revenue of $93,600 in 2005/06 was 7 percent below the 2004/05 figure. Overall, the wool price fell 10 percent from $3.84 per kilogram to $3.46 per kilogram. Wool weight was 4.8 kilogram per sheep stock unit, slightly higher than 4.7 in 2004/05. The continued decline in wool price per kilogram was partly a reflection of the trend towards more Crossbred sheep being run in place of half-bred sheep.
The average lamb price in 2005/06 was $46.00 per head, a $14.20 per head decrease (24 percent) from $60.20 per head the previous year. Sixty-five percent of the lambs sold in this model were sold finished for slaughter at an average price of $49.80 per head compared with $62.60 per head in 2004/05. The balance of lambs were sold store at an average price of $38.95 per head compared with $55.30 per head in 2004/05. The top quartile farmers’ average lamb price for 2005/06 was $47.50 per head with 55 percent being finished at $52.20 per head. The top quartile farmers’ average lambing percentage was 131 percent. The higher lambing percentage and lamb price equates to $5.27 per sheep stock unit for top quartile farmers. Farmers who sold store lambs early received premium prices for store and finished lambs compared to those who sold during the mid-summer period due to the rapid decline in export prices. Hoggets carried through the 2005/06 winter were sold for an average of $73.70 per head and ewe sale prices averaged $43.70 per head.
Steer calves sold for $432 per head, which equalled prices of 2004/05. Older steers sold for $715 per head, compared with $862 per head in 2004/05, due to many finishing animals being sold store because of lower summer pasture levels. Cull cows averaged $559 per head whereas R2 heifers sold for $672 per head.
Gross farm revenue per kilogram of product sold (carcass weight meat and wool) was $3.32 per kilogram in 2005/06 compared with $4.16 per kilogram in 2004/05.
Table 12.3: Otago dry hill sheep and beef cash farm revenue
| 2002/03 ($) | 2003/04 ($) | 2004/05 ($) | 2005/06 ($) | 2006/07f ($) |
|
|---|---|---|---|---|---|
| Sheep sales less purchases | 241 050 | 231 147 | 296 234 | 253 709 | 257 878 |
| Cattle sales less purchases | 34 160 | 29 700 | 56 911 | 42 595 | 45 974 |
| Wool | 123 250 | 106 883 | 100 773 | 93 645 | 95 388 |
| Grazing income | 0 | 0 | 0 | 0 | 0 |
| Other income | 10 970 | 4 816 | 5 678 | 4 712 | 3 972 |
| Gross farm revenue | 409 430 | 372 546 | 459 596 | 394 661 | 403 212 |
Symbol
f Forecast
Expenditure
Farm working expenses were $232,000 ($35.65 per stock unit) in 2005/06, the same as the previous year. This represented 59 percent of gross farm revenue in 2005/06 compared with 51 percent in 2004/05 due to lower revenue levels in 2005/06.
Feed costs decreased to $19,300 ($2.96 per stock unit) from $23,980 ($3.67 per stock unit) in 2004/05 due to the high supplement reserves from previous years and poor hay and silage growth for the season of 2005/06.
Labour costs increased to $28,000 from $17,900 in 2004/05. Fertiliser expenditure decreased to $35,800 ($5.49 per stock unit) from $39,950 ($6.11) in 2004/05. Repairs and maintenance expenditure fell slightly to $13,700 ($2.11 per stock unit). Debt servicing and rent was $50,800 ($7.80 per stock unit), which was 13 percent of gross farm revenue. Cash drawings increased to $44,000 (up 10 percent) with the main increase due to school boarding fees.
Capital expenditure on vehicles and machinery decreased to $20,000, down from $36,500 in 2004/05. Most farmers have replaced vehicles and machinery over the past two years and now have a good standard of equipment. Development costs were $16,000, mainly related to continued investment in irrigation. This has increased over last year’s $11,750. Farm working expenses per kilogram of produce sold were $1.89 per kilogram compared with $2.10 per kilogram in the 2004/05 year.
Net result
The Otago dry hill farm model recorded a net cash change of $17,600 for the 2005/06 year compared with the 2004/05 record of $70,000.
Net trading profit before tax was $88,500, or $13.60 per stock unit, which was down significantly from $174,000 in 2004/05. The model showed a return on capital of 1.6 percent (excluding capital gain) in 2005/06, down significantly on the 2004/05 figure of 4.6 percent.
As at June 2006 the model property was valued at $3,380,000 for land and buildings ($515 per stock unit). This represents no change in land values over the past 12 months. Total farm capital for this 2000 hectare property at June 2006 was around $4,100,000 ($625 per stock unit) with equity of $3,600,000.
Forecasts for 2006/07
Revenue
Gross farm revenue is budgeted to increase by 2 percent to $403,000, or $61.40 per stock unit, in 2006/07. The increase in gross farm revenue is due to a smaller increase in prices. The average lamb price is expected to increase to $49.00 per head ($46 per head in 2005/06) due to an expected increase in prime lamb price to $53.00 per head, compared with $50.00 per head in 2005/06, and store prices increasing to $42.00 per head compared with $39.00 per head in 2005/06. Farmers are forecasting to sell 65 percent of lambs prime, the same ratio as in 2005/06. Lambing percentages are expected to ease to 120 percent from the record high of 123 percent in 2005/06.
Cattle income is expected to increase to $50.00 per stock unit, up from $46.00 per stock unit. Wool income is expected to increase slightly in 2006/07 due to a lift in wool price to $3.66 per kilogram from $3.46 per kilogram. Lamb and sheep sales are expected to contribute 64 percent of revenue, wool sales 24 percent and cattle sales 11 percent.
Expenditure
Cash farm expenditure is expected to decrease slightly from $232,000 to $229,000 ($34.92 per stock unit). This represents 57 percent of gross farm revenue compared with 59 percent in 2005/06 and 51 percent in 2004/05.
The model average is expected to spend 8.6 percent less on animal health due to less use of capsules in ewes. The feed and supplement cost is forecast at $3.54 per stock unit compared with $2.96 per stock unit in 2005/06. This is due to farmers expectations of a better hay and silage season in 2006/07.
Fertiliser and lime expenditure is budgeted at $5.32 per stock unit, which is a decrease from 2005/06 at $5.86 per stock unit. Industry representatives consider this to be $2 per stock unit below maintenance levels.
Weed and pest control is expected to increase to $12,700 or $1.93 per stock unit from $10,800 in 2005/06 due to more Otago dry hill farmers poisoning to reduce rabbit numbers.
Farmers are expecting fuel costs to increase by 13.5 percent to $13,800. Drawings are budgeted to remain at $44,000 and capital purchases are expected to reduce to $18,600. Taxation is forecast to be $17,620.
Net result
The model farm is expected to generate a net cash change of $34,900. Net trading profit before tax is forecast to increase from $88,600 in 2005/06 to $102,600 in 2006/07.
Figure 12.1: Otago dry hill sheep and beef profitability trends
Issues and trends
Below-average levels of supplementary feed were made this year due to a dry summer and early autumn. The average farm is continuing with a development programme but at a lower level than in previous years. Most planned development is for subdivision fencing and continued on-farm water storage and micro-irrigation schemes.
More farms are considering the use of poison to control the increase of rabbit numbers. Hieracium is becoming an issue for some farms represented by this model. Many Otago dry hill properties experienced a higher presence of grass grub and porina in young grass paddocks during the 2005/06 year.
There is a bigger spread of production and financial performance between farms than previously experienced in the history of the model. Top quartile farmers appear to be farming to the environment’s constraints with a focus on a core number of capital stock, e.g. breeding ewes being well fed, selling store lambs, with a flexible cattle policy.
This group of farmers are making financial progress on average and are achieving this through reasonable scale and a lower cost farming system. Farm succession remains an issue for those farmers where children wish to return home.
Table 12.4: Otago dry hill sheep and beef budget
| 2005/06 | 2006/07f | |||||
|---|---|---|---|---|---|---|
| Whole farm ($) | Per ha ($) | Per su ($) | Whole farm ($) | Per ha ($) | Per su ($) |
|
Revenue | ||||||
| Sheep | 261 275 | 131 | 46.74 | 263 116 | 132 | 46.54 |
| Wool | 93 645 | 47 | 16.75 | 95 388 | 48 | 16.87 |
| Cattle | 45 928 | 23 | 49.49 | 47 174 | 24 | 51.66 |
| Grazing income | 0 | 0 | 0.00 | 0 | 0 | 0.00 |
| Other farm income | 4 712 | 2 | 0.72 | 3 972 | 2 | 0.60 |
| Less | ||||||
| Sheep purchases | 7 566 | 4 | 1.35 | 5 238 | 3 | 0.93 |
| Cattle purchases | 3 333 | 2 | 3.59 | 1 200 | 1 | 1.31 |
| Gross farm revenue | >394 661 | >197 | >60.55 | >403 212 | >202 | >61.40 |
| Cash farm expenditure | >232 337 | >116 | >35.65 | >229 288 | >115 | >34.92 |
| Interest | >45 025 | >23 | >6.91 | >45 025 | >23 | >6.86 |
| Rent and/or leases | 5 800 | 3 | 0.89 | 5 800 | 3 | 0.88 |
| >Cash farm surplus | >111 499 | >56 | >17.11 | >123 099 | >62 | >18.75 |
| Stock value adjustment | 5 156 | 3 | 0.79 | 6 994 | 3 | 1.07 |
| Minus depreciation | 28 104 | 14 | 4.31 | 27 503 | 14 | 4.19 |
| >Net trading profit | >88 551 | >44 | >13.59 | >102 590 | >51 | >15.62 |
| Taxation | 17 140 | 9 | 2.63 | 17 619 | 9 | 2.68 |
| >Net trading profit after tax | >71 411 | >36 | >10.96 | >84 972 | >42 | >12.94 |
Allocation of funds | ||||||
| Add back depreciation | 28 104 | 14 | 4.31 | 27 503 | 14 | 4.19 |
| Reverse stock value adjustment | – 5 156 | – 3 | – 0.79 | – 6 994 | – 3 | – 1.07 |
| Drawings | 44 000 | 22 | 6.75 | 44 000 | 22 | 6.70 |
| Principal repayments | 0 | 0 | 0.00 | 6 700 | 3 | 1.02 |
| Development | 16 000 | 8 | 2.45 | 5 000 | 3 | 0.76 |
| >Capital purchases | 20 000 | 10 | 3.07 | 18 600 | 9 | 2.83 |
| Disposable surplus/deficit | >14 359 | >7 | >2.20 | >31 180 | >16 | >4.75 |
Other cash sources | ||||||
| New borrowing | 0 | 0 | 0.00 | 0 | 0 | 0.00 |
| Off-farm income | 3 250 | 2 | 0.50 | 3 750 | 2 | 0.57 |
| >Other cash income | 0 | 0 | 0.00 | 0 | 0 | 0.00 |
| Net cash change | >17 609 | >9 | >2.70 | >34 930 | >17 | >5.32 |
Assets and liabilities | ||||||
| Farm, forest and building (opening) | 3 380 000 | 1 690 | 518.60 | 3 380 000 | 1 690 | 514.73 |
| Plant and machinery (opening) | 154 863 | 77 | 23.76 | 151 664 | 76 | 23.10 |
| >Stock valuation (opening) | 564 573 | 282 | 86.62 | 569 729 | 285 | 86.76 |
| Total farm capital | >4 099 436 | >2 050 | >628.99 | >4 101 393 | >2 051 | >624.59 |
| Total debt opening | 515 000 | 258 | 79.02 | 515 000 | 258 | 78.43 |
| Equity | 3 584 436 | 1 792 | 549.97 | 3 586 393 | 1 793 | 546.16 |
Table 12.5: Otago dry hill 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 | 28 000 | 14 | 4.30 | 29 300 | 15 | 4.46 |
| Casual wages | 0 | 0 | 0.00 | 0 | 0 | 0.00 |
| ACC | 3 812 | 2 | 0.58 | 3 936 | 2 | 0.60 |
| Animal health | 18 900 | 9 | 2.90 | 17 300 | 9 | 2.63 |
| Breeding | 1 800 | 1 | 0.28 | 1 800 | 1 | 0.27 |
| Electricity | 4 000 | 2 | 0.61 | 4 100 | 2 | 0.62 |
| Feed (hay and silage) | 10 900 | 5 | 1.67 | 13 000 | 7 | 1.98 |
| Feed (crops) | 5 805 | 3 | 0.89 | 6 285 | 3 | 0.96 |
| Feed (grazing) | 1 300 | 1 | 0.20 | 2 655 | 1 | 0.40 |
| Feed (other) | 1 300 | 1 | 0.20 | 1 300 | 1 | 0.20 |
| Fertiliser | 35 800 | 18 | 5.49 | 32 980 | 16 | 5.02 |
| Lime | 2 400 | 1 | 0.37 | 2 000 | 1 | 0.30 |
| Farm forestry costs | 600 | 0 | 0.09 | 500 | 0 | 0.08 |
| Freight (not elsewhere deducted) | 5 610 | 3 | 0.86 | 5 880 | 3 | 0.90 |
| Re-grassing costs (contractors) | 11 290 | 6 | 1.73 | 10 005 | 5 | 1.52 |
| Shearing costs | 29 195 | 15 | 5.22 | 29 670 | 15 | 5.25 |
| Weed and pest control | 10 810 | 5 | 1.66 | 12 700 | 6 | 1.93 |
| Fuel | 12 165 | 6 | 1.87 | 13 800 | 7 | 2.10 |
| Vehicle costs (excluding fuel) | 7 500 | 4 | 1.15 | 7 380 | 4 | 1.12 |
| Repairs and maintenance | 13 720 | 7 | 2.11 | 7 605 | 4 | 1.16 |
| Communication costs (phone and mail) | 2 360 | 1 | 0.36 | 2 400 | 1 | 0.37 |
| Accountancy | 3 100 | 2 | 0.48 | 3 200 | 2 | 0.49 |
| Legal and consultancy | 1 650 | 1 | 0.25 | 1 702 | 1 | 0.26 |
| Other administration | 1 870 | 1 | 0.29 | 1 940 | 1 | 0.30 |
| Rates | 8 600 | 4 | 1.32 | 8 650 | 4 | 1.32 |
| Insurance | 6 150 | 3 | 0.94 | 5 900 | 3 | 0.90 |
| Water charges | 1 000 | 1 | 0.15 | 1 020 | 1 | 0.16 |
| Other expenditure | 2 700 | 1 | 0.41 | 2 280 | 1 | 0.35 |
| Cash farm expenditure | 232 337 | 116 | 35.65 | 229 288 | 115 | 34.92 |
Calculated ratios | ||||||
| Economic farm surplus (EFS1) | 67 381 | 34 | 10.34 | 81 402 | 41 | 12.40 |
| Cash farm expenditure/GFR2 | 59% | 57% | ||||
| EFS/total farm capital | 1.6% | 2.0% | ||||
| EFS less interest & lease/equity | 0.5% | 0.9% | ||||
| Interest+rent+lease/GFR | 12.9% | 12.6% | ||||
| EFS/GFR | 17.1% | 20.2% |
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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