- The Gisborne large hill country sheep and beef farm
- Key points
- Physical factors
- Financial position of the farm
- Issues and trends
- Budget
6 Gisborne large hill country sheep and beef
The Gisborne large hill country sheep and beef farm
This model represents about 230 farms located from the top of the East Coast through to inland Wairoa. The farm contours range from steep, erosion-prone hill country to easy rolling, high producing farmland. Of the farms represented in this model, 40 percent are Māori owned and 80 percent have absentee owners. Romney and Perendale are the main sheep breeds, and Angus and Hereford the main cattle breeds on these properties.
This model is based on a traditional breeding livestock policy with 58 percent sheep stock units. The system is relatively self-contained with rams, breeding bulls and rising one year (R1 yr) bulls being the only stock purchased for the model property.
The model has increased by 76 effective hectares to reflect the continuing increase in size of large hill country farms in this region. The total area of the model is 2 200 hectares. The staffing for the model consists of a manager and a further 2.75 fulltime employees.
Table 6.1: Gisborne large hill country sheep and beef model summary, 2005/06
| Effective area | 1 681 ha | Total stock units wintered | 15 024 su | |
| Opening stock wintered | Breeding cows | 524 hd | ||
| Breeding ewes | 6 524 hd | R1yr cattle | 412 hd | |
| Replacement ewe hoggets | 2 464 hd | R2yr cattle | 285 hd | |
| Other sheep | 643 hd | Other cattle | 20 hd |
Key points
- A record lambing percentage of 121 percent was recorded for the model in 2005.
- A wet spring, summer, and autumn caused considerable animal health problems among lambs.
- Gross farm revenue fell 8 percent per stock unit in 2005/06 compared with 2004/05, due to lower lamb prices. The result was a disposable deficit for the model of $29,000.
- Farm expenses rose to $578,000, with cash farm expenditure accounting for 77 percent of gross farm revenue.
- Profitability is forecast to improve in the 2006/07 year due to an improvement in sheep revenue from increases in prices and production, and no tax payment required, following the 2005/06 deficit.
- Farmer awareness of sustainable farming is increasing.
Table 6.2: Key parameters of the Gisborne large hill country sheep and beef model
| 2002/03 | 2003/04 | 2004/05 | 2005/06 | 2006/07f | |
|---|---|---|---|---|---|
| Effective area (ha) | 1 548 | 1 605 | 1 605 | 1 681 | 1 681 |
| Opening sheep stock units | 7 374 | 8 015 | 8 053 | 8 706 | 8 976 |
| Opening cattle stock units | 6 599 | 6 511 | 6 290 | 6 317 | 6 319 |
| Opening total stock units | 13 973 | 14 526 | 14 343 | 15 024 | 15 295 |
| Stocking rate (su/ha) | 9.0 | 9.1 | 8.9 | 8.9 | 9.1 |
| Ewe lambing (%) | 116 | 114 | 119 | 121 | 124 |
| Average lamb price ($/hd) | 60.53 | 60.49 | 61.71 | 47.04 | 51.31 |
| Average wool price ($/kg) | 2.96 | 2.83 | 2.61 | 2.45 | 2.49 |
| Total wool produced (kg) | 35 394 | 38 641 | 39 459 | 41 300 | 43 600 |
| Wool production (kg/ssu1) | 4.80 | 4.82 | 4.90 | 4.74 | 4.86 |
| Average R2yr steer ($/hd) | 739 | 709 | 700 | 704 | 690 |
| Average R2yr bull ($/hd) | 701 | 693 | 750 | 864 | 873 |
| Average cull cow ($/hd) | 474 | 459 | 505 | 576 | 547 |
| Gross farm revenue ($) | 634 993 | 780 603 | 782 819 | 751 317 | 794 233 |
| Cash farm surplus ($) | 129 781 | 223 441 | 199 442 | 89 843 | 116 392 |
| Net trading profit ($) | 175 439 | 162 534 | 148 684 | 87 936 | 120 603 |
| Disposable surplus/deficit ($) | – 59 166 | 47 864 | 4 970 | – 28 989 | 45 872 |
Note
1 Sheep stock unit.
Symbol
f Forecast
Physical factors
Pasture covers at lambing in 2005 were average (1350 kilogram of dry matter). There is a general feeling that pasture covers in winters now are better due to the higher fertiliser inputs and improved fencing of recent years. Storms still had an impact on some late lambing flocks.
Floods hit the region in October and again in November. Worst hit were the flats of Tolaga Bay, Te Karaka and Ngatapa. The floods also caused damage to the hill country, with track damage and significant erosion cracks on the hill sides. No direct government assistance was provided to the effected farmers.
The summer and autumn of 2006 saw above-average rainfall. This was positive for pasture growth with feed covers in the autumn being 150 kilograms of dry matter above-average. There is now high-quality pasture right across the district.
The wet and mild summer contributed to one of the worst years on record for health problems among young lambs. The main cause was fungal toxins such as fusaria and facial eczema, which impacted on liveweight gain. The ewes were also under pressure with salmonella being a major problem. Sheep parasites such as Haemonchus also thrived in the mild and wet conditions.
The model’s lambing percentage continued to increase reaching a record high of 121 percent in 2005/06, up 2 percent from the previous year. Lambing percentage is forecast to increase to 124 percent in 2006/07. High fertility breeds and genetic merit have been key drivers behind the continual improvement in the lambing percentages in this district. Also assisting the increase has been the use of Androvax, improved feeding and a later lambing. The practice of hogget lambing continued to increase with 42 percent mated in 2005. However, in April 2006 the ewe lambs were lighter than normal due to the health problems resulting in a smaller number mated than originally planned.
Breeding cows were in good condition throughout the year due to the higher feed covers and low levels of disease. The average calving percent was 83 percent in 2005. Some farms in the region achieved about 95 percent. It was a healthy year for young cattle and the higher pasture cover from the wet summer and autumn resulted in slightly better than average liveweights going into winter.
Financial position of the farm
Review of 2005/06
Revenue
The gross farm revenue fell 8.4 percent per stock unit between 2004/05 and 2005/06 to $50.00 per stock unit. The increase in model size in 2005/06 has meant a comparison of results per stock unit is more accurate than comparing the total gross farm revenue between these years (down 4 percent), which hides the true fall. The decrease in revenue was due to lower sheep revenue.
Lower prices for lambs were the main contributor to the fall in sheep revenue. Lamb export prices fell considerably in January, particularly in the United Kingdom market, due to higher than normal quantities of New Zealand lamb in the market and increased United Kingdom production. The high New Zealand dollar exacerbated these lower international prices.
The average lamb price in the model fell 24 percent, from $61.70 in 2004/05
to $47.00 in 2005/06. Fifty-one percent of the lambs in this model were sold
finished at an average price of $51.00 per head, a $14.60 decrease from 2004/05.
Store lambs averaged $43.00 per head, a fall of $11.30 per head compared with
last year. Prices for other sheep also decreased with the average ewe price
falling $6.00 to $45.00 per head.
Wool revenue was also lower in 2005/06 compared with 2004/05 due to lower prices
and production. The average return per kilogram was down 6.1 percent to $2.45
and wool production per sheep stock unit was down 3.2 percent.
Cattle revenue increased 6.4 percent per cattle stock unit from $46.50 to $49.50 between 2004/05 and 2005/06. Price increases were across the board for cattle except for mixed age steers which fell $35.00 per head. The average cow price increased $71.00 per head to $576.00 and the average rising three year bull price increased from $897.00 per head to $914.00 per head.
Table 6.3: Gisborne large hill country sheep and beef cash farm revenue
| 2002/03 ($) | 2003/04 ($) | 2004/05 ($) | 2005/06 ($) | 2006/07f ($) | |
|---|---|---|---|---|---|
| Sheep sales less purchases | 297 357 | 385 291 | 390 918 | 355 812 | 424 691 |
| Cattle sales less purchases | 226 117 | 276 830 | 275 912 | 280 520 | 247 978 |
| Wool | 104 767 | 109 354 | 102 989 | 101 185 | 108 564 |
| Other income | 6 752 | 9 128 | 13 000 | 13 800 | 13 000 |
| Gross farm revenue | 634 993 | 780 603 | 782 819 | 751 317 | 794 233 |
Symbol
f Forecast
Expenditure
Cash farm expenditure rose 4.6 percent per stock unit to $38.50 between 2004/05 and 2005/06. Cash farm expenditure as a proportion of gross farm revenue increased from 67 percent to 77 percent, a combined result of the increase in expenditure and decrease in revenue. Key areas for increased expenditure were in wages for permanent and casual staff, supplementary feed, fuel and freight, shearing costs, weed and pest control and legal and consultancy fees.
Permanent wages increased 16 percent per stock unit and casual wages 10 percent, reflecting an increase in staffing and some wage inflation. Between the 2005 and 2006 report, wages of management have been removed from economic farm surplus calculations because the manager’s salary is now included in farm working expenses.
Rising fuel prices contributed to the increase in fuel expenditure and freight costs. Shearing costs increased 7 percent to $6.90 per stock unit. The cost of shearing accounted for 59 percent of the wool revenue, up from 50 percent in 2004/05. Expected increases in fertiliser and animal health expenditure did not eventuate in this model as farmers reduced spending in response to the fall in lamb prices.
Net result
The fall in revenue and rise in expenditure in the 2005/06 year has resulted in a significant fall in the cash farm surplus. The cash farm surplus was $89,800, which is a decrease of 57 percent per stock unit compared with 2004/05. In dollar terms, this is a fall from $13.90 to $6.00 per stock unit. The decrease in net trading profit between years was lower at 44 percent per stock unit due to the stock value adjustment from the increase in stock numbers.
The disposable deficit of nearly $29,000 was a fall from a surplus of $0.35 per stock unit to a deficit of $1.90 per stock unit between 2004/05 and 2005/06. In 2005/06 most properties have moved to interest-only loan repayments, without which the deficit would be double that recorded.
The calculation of economic farm surplus for this model has been adjusted this year to exclude wages of management as a manager’s salary is included in the farm working expenses. If the same adjustment is made to last year’s model the return on capital falls from 3.2 percent in 2004/05 to 2.3 percent in 2005/06.
Forecasts for 2006/07
Revenue
Gross farm revenue is expected to increase by $42,900 (5.7 percent) to $794,200 in 2006/07. The increase is expected to be driven by an improvement in sheep and wool revenue, while the cattle revenue is expected to fall.
Increased prices and lambing percentage, as well as a slightly higher stocking rate, are expected to contribute to the increase in sheep revenue. Average lamb prices are forecast to increase to $51.00, up $4.30. Lambing percentages are forecast to increase to 124 percent for ewes and 71 percent for hoggets.
Increasing sheep numbers and an increase in wool yield are expected to contribute to the increase in wool revenue. Little improvement is expected in the wool price between years.
Cattle revenue is forecast to decrease 13 percent as a result of changes in the number of cattle sold and a $29 fall in the average cow price.
Expenditure
Cash farm expenditure is forecast to increase $10,100 to $588,300. On a stock unit basis this is similar to expenditure in 2005/06. Because of the unprofitable year in 2005/06 farmers are planning to reduce costs where possible with decreases predicted for expenditure on repairs and maintenance, casual wages, and vehicle expenses. However, industry commentators feel that farmers are unlikely to keep costs at the level forecast and expect a greater increase in farm expenditure.
Higher prices will drive an increase in fertiliser and animal health costs, with the application of fertiliser expected to fall slightly compared with 2005/06.
Permanent wages are forecast to increase $9,000 (4 percent) while ACC is expected to fall due to the drop in the net trading profit in 2005/06.
A 15 percent increase is expected in rates due to the recent round of revaluations, and lease repayments are expected to increase as many come up for renewal.
Net result
The cash farm surplus for 2006/07 is expected to rise 30 percent. This is mainly due to higher sheep revenue and cash farm expenditure accounting for a lower proportion (74 percent) of gross farm revenue than in 2005/06 (77 percent).
The net trading profit after tax is forecast to increase by 152 percent due to a tax refund calculated on last years low net trading profit. This leads to a disposable surplus of $45,900, an increase of $74,900 from the 2005/06 deficit of $29,000.
The economic farm surplus is expected to increase 20 percent, from $116.00 per hectare in 2005/06 to $139.00 per hectare in 2006/07. A slight fall in the return on capital is expected as land values increased from $450.00 per stock unit to $600.00 per stock unit early in the 2005/06 year.
Figure 6.1: Gisborne large hill country sheep and beef profitability trends
Issues and trends
Farmer morale is mixed as the positives of an increase in land prices has been softened by the negative sheep issues and the wave of increasing costs. Particularly hard hit are the farmers who have expanded the size of their farm business recently and therefore have high debts and high interest commitments. They now have real issues with profitability at the current level of sheep prices.
Land values rose from the start of the year by $150.00 per stock unit to $600.00 per stock unit. The land market peaked in spring 2005 at about $650.00 per stock unit and is now finding a new level as buyers and sellers have different expectations.
Although a wetter than usual year, with floods experienced in October and November, the major cyclones predicted by some weather forecasters did not eventuate.
Meat companies were well out in their prediction for sheep meat prices this season, with actual prices much lower than predicted. The low schedule, low levels of meat company profit and shareholder changes have caused farmers to feel disgruntled towards meat processors. Lamb selling is a dilemma for farmers as at times there appears to be little justification to finish lambs compared with selling them store.
Farmers remain pessimistic about wool production as shearing costs increase and wool prices remain flat or falling. There is a tendency to view the process as an animal health cost. Farmers have tried to cut back on the amount of shearing done and little attention is given to wool handling.
There is increased enthusiasm for cattle, created by firm beef prices and the increased costs and low prices from sheep. Supplying foetal bovine blood is now being considered by an increasing number of farmers as they explore opportunities to make more money. Animal blood is now being used in the production of pharmaceuticals, diagnostic reagents and dietary supplements. There is high demand for foetal bovine blood as it is high in growth hormones and other proteins, and is less likely to contain some viruses present in adult cattle. These factors combined with its limited supply make it valuable.
Deer numbers in the region continue to decline as farmers are not expecting any recovery in the venison market.
The availability of farm labour has improved. However, good staff are a scarce resource and they are demanding significantly higher remuneration packages. Fencers and shearers are still scarce, but an increased number are at present attending shearing courses.
The amount of nitrogen applied may fall as farmers review the profitability of nitrogen application in view of the lower sheep prices and increased application cost.
Animal health costs are increasing as more disease prevention tools are being used, especially with sheep, to increase and maintain production. Drench resistance continues to build as a major concern facing farmers.
Farmers are disappointed that there is not a liveweight-based selling system at Matawhero sale yards, the largest sale yards in the region, when all other significant sale yards in the North Island already have them.
The increase in costs and time involved with compliance is a concern to farmers. Restrictions on clearance of vegetation is an ongoing battle between farmers, local government bodies and the Department of Conservation. A number of farmers would like to control regrown vegetation, which is mainly manuka and kanuka. The main method of control is through helicopter spraying although some farmers are still cutting. Farmers report that it is becoming increasingly difficult to obtain consent for control.
There is increased awareness by farmers of sustainable farming, particularly nutrient budgeting, land care programmes, riparian margins, water quality and drench resistance. Farmers are awaiting the outcome of the East Coast Forestry Project review with interest.
The rural school roles seem to be stable or even increasing across the district as a result of more young people farming. Unfortunately country roads are in a poor state due to low levels of maintenance combined with the heavy rain events.
Table 6.4: Gisborne large hill country sheep and beef budget
| 2005/06 | 2006/07f | |||||
|---|---|---|---|---|---|---|
| Whole farm ($) | Per ha ($) | Per su ($) | Whole farm ($) | Per ha ($) | Per su ($) | |
Revenue | ||||||
| Sheep | 372 812 | 222 | 42.82 | 438 376 | 261 | 48.84 |
| Wool | 101 185 | 60 | 11.62 | 108 564 | 65 | 12.09 |
| Cattle | 312 610 | 186 | 49.48 | 271 108 | 161 | 42.91 |
| Grazing income | 0 | 0 | 0.00 | 0 | 0 | 0.00 |
| Other farm income | 13 800 | 8 | 0.92 | 13 000 | 8 | 0.85 |
| Less | ||||||
| Sheep purchases | 17 000 | 10 | 1.95 | 13 685 | 8 | 1.52 |
| Cattle purchases | 32 090 | 19 | 5.08 | 23 130 | 14 | 3.66 |
| Gross farm revenue | 751 317 | 447 | 50.01 | 794 233 | 472 | 51.93 |
| Cash farm expenditure | 578 148 | 344 | 38.48 | 588 282 | 350 | 38.46 |
| Interest | 72 325 | 43 | 4.81 | 71 559 | 43 | 4.68 |
| Rent and/or leases | 11 000 | 7 | 0.73 | 18 000 | 11 | 1.18 |
| Cash farm surplus | 89 843 | 53 | 5.98 | 116 392 | 69 | 7.61 |
| Stock value adjustment | 21 487 | 13 | 1.43 | 27 152 | 16 | 1.78 |
| Minus depreciation | 23 394 | 14 | 1.56 | 22 941 | 14 | 1.50 |
| Net trading profit | 87 936 | 52 | 5.85 | 120 603 | 72 | 7.89 |
| Taxation | 37 332 | 22 | 2.48 | – 6 980 | – 4 | – 0.46 |
| Net trading profit after tax | 50 604 | 30 | 3.37 | 127 583 | 76 | 8.34 |
Allocation of funds | ||||||
| Add back depreciation | 23 394 | 14 | 1.56 | 22 941 | 14 | 1.50 |
| Reverse stock value adjustment | – 21 487 | – 13 | – 1.43 | – 27 152 | – 16 | – 1.78 |
| Drawings | 40 000 | 24 | 2.66 | 43 000 | 26 | 2.81 |
| Principal repayments | 0 | 0 | 0.00 | 0 | 0 | 0.00 |
| Development | 26 000 | 15 | 1.73 | 22 000 | 13 | 1.44 |
| Capital purchases | 15 500 | 9 | 1.03 | 12 500 | 7 | 0.82 |
| Disposable surplus/deficit | – 28 989 | – 17 | – 1.93 | 45 872 | 27 | 3.00 |
Other cash sources | ||||||
| New borrowing | 0 | 0 | 0.00 | 0 | 0 | 0.00 |
| Off-farm income | 0 | 0 | 0.00 | 0 | 0 | 0.00 |
| Other cash income | 0 | 0 | 0.00 | 0 | 0 | 0.00 |
| Net cash change | – 28 989 | – 17 | – 1.93 | 45 872 | 27 | 3.00 |
Assets and liabilities | ||||||
| Farm, forest and building (opening) | 6 760 710 | 4 022 | 450.00 | 9 176 970 | 5 459 | 600.00 |
| Plant and machinery (opening) | 116 959 | 70 | 7.78 | 114 915 | 68 | 7.51 |
| Stock valuation (opening) | 1 495 853 | 890 | 99.57 | 1 517 340 | 903 | 99.21 |
| Total farm capital | 8 373 522 | 4 981 | 557.35 | 10 809 225 | 6 430 | 706.72 |
| Total debt opening | 844 285 | 502 | 56.20 | 844 500 | 502 | 55.21 |
| Equity | 7 529 237 | 4 479 | 501.15 | 9 964 725 | 5 928 | 651.50 |
Symbol
f Forecast
Table 6.5: Gisborne large hill country 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 | 146 000 | 87 | 9.72 | 155 000 | 92 | 10.13 |
| Casual wages | 14 828 | 9 | 0.99 | 13 800 | 8 | 0.90 |
| ACC | 10 893 | 6 | 0.73 | 9 401 | 6 | 0.61 |
| Animal health | 42 968 | 26 | 2.86 | 45 870 | 27 | 3.00 |
| Breeding | 6 460 | 4 | 0.43 | 7 334 | 4 | 0.48 |
| Electricity | 7 385 | 4 | 0.49 | 7 648 | 5 | 0.50 |
| Feed (hay and silage) | 3 923 | 2 | 0.26 | 3 735 | 2 | 0.24 |
| Feed (crops) | 0 | 0 | 0.00 | 0 | 0 | 0.00 |
| Feed (grazing) | 0 | 0 | 0.00 | 0 | 0 | 0.00 |
| Feed (other) | 298 | 0 | 0.02 | 185 | 0 | 0.01 |
| Fertiliser | 90 240 | 54 | 6.01 | 94 545 | 56 | 6.18 |
| Lime | 0 | 0 | 0.00 | 0 | 0 | 0.00 |
| Farm forestry costs | 1 700 | 1 | 0.11 | 1 500 | 1 | 0.10 |
| Freight (not elsewhere deducted) | 9 500 | 6 | 0.63 | 10 261 | 6 | 0.67 |
| Re-grassing costs (contractors) | 1 500 | 1 | 0.10 | 1 800 | 1 | 0.12 |
| Shearing costs (per ssu) | 59 987 | 36 | 6.89 | 60 908 | 36 | 6.79 |
| Weed and pest control | 16 013 | 10 | 1.07 | 16 862 | 10 | 1.10 |
| Fuel | 9 800 | 6 | 0.65 | 10 345 | 6 | 0.68 |
| Vehicle costs (excluding fuel) | 11 027 | 7 | 0.73 | 10 505 | 6 | 0.69 |
| Repairs and maintenance | 66 579 | 40 | 4.43 | 57 635 | 34 | 3.77 |
| Communication costs (phone and mail) | 3 740 | 2 | 0.25 | 3 855 | 2 | 0.25 |
| Accountancy | 12 793 | 8 | 0.85 | 12 793 | 8 | 0.84 |
| Legal and consultancy | 10 300 | 6 | 0.69 | 9 120 | 5 | 0.60 |
| Other administration | 10 279 | 6 | 0.68 | 10 328 | 6 | 0.68 |
| Rates | 21 114 | 13 | 1.41 | 24 281 | 14 | 1.59 |
| Insurance | 6 315 | 4 | 0.42 | 6 571 | 4 | 0.43 |
| Water charges | 0 | 0 | 0.00 | 0 | 0 | 0.00 |
| Other expenditure | 14 506 | 9 | 0.97 | 14 000 | 8 | 0.92 |
| Cash farm expenditure | 578 148 | 344 | 38.48 | 588 282 | 350 | 38.46 |
Calculated ratios | ||||||
| Economic farm surplus (EFS1) | 194 656 | 116 | 12.96 | 233 103 | 139 | 15.24 |
| Cash farm expenditure/GFR2 | 77% | 74% | ||||
| EFS/total farm capital | 2.3% | 2.2% | ||||
| EFS less interest & lease/equity | 1.5% | 1.4% | ||||
| Interest+rent+lease/GFR | 11.1% | 11.3% | ||||
| EFS/GFR | 25.9% | 29.3% |
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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