Ovine Observer

Opportunities for sheep enterprise expansion

Greg Kirk and Paul Omodei, Planfarm

Expanding the sheep enterprise is looking more financially attractive, with current margins for sheep matching or exceeding crop margins in some regions of Western Australia (WA). The expansion of sheep numbers on an individual farm can be achieved either by a change in sheep productivity and profitability without a change in cropping area, or a change in land use away from cropping back to sheep production.

In this study, historical financial and production data, and interviews with top sheep producers were used to identify opportunities for producers to expand their sheep enterprise. 

Financial analysis of sheep and cropping enterprises in the wool belt and cereal-sheep zone

The past financial performance and relative productivity of 350 farm businesses, focusing on those located in the wool belt (H4) and the cereal-sheep zone (L4 and M4), were analysed across the 2011‑2015 period. This was considered a time period that broadly reflects the seasonal and market conditions regularly encountered in WA. The analysis of each region aimed to discover what was the overall average farm financial performance (Table 2) and what was the relative contribution of the sheep and cropping enterprises. 

Figure 4 Average crop and sheep margins per hectare for the L4, M4 and H4 regions for 2011-2015

During the 2011-2015 period, crop margins were substantially higher than sheep margins on average. However, relatively small changes in crop and sheep income could switch margins in favour of sheep in the H4 and M4 regions. Crop margins are a lot more volatile than sheep margins across all the regions, being far more responsive to seasonal conditions.

Sheep and wool production tend to be more stable, with the most profitable years being determined less by seasonal conditions and more by high sheep and wool prices.

At present prices, the margin differentials between crop and sheep are favouring expansion in the wool belt and western parts of the cereal-sheep zone. Sheep margins can equal cropping margins if the average grain prices fall by only 13%, 18% and 21% in the H4, M4 and L4 regions respectively. APW at $245/t FIS is 17% below the 2011-2015 average price of $295/t FIS.

Cereal zone (L4 and M4)

In the cereal zone the major management decisions revolve around cropping, which can have negative impacts on the sheep enterprise. However, the sheep enterprise can be used to increase overall profitability by utilising land which would otherwise be unproductive; by utilising stubbles and low quality feed grain.

Wool belt (H4)

In the wool belt the dominant land use is cropping. However, 95% of farms in the region run sheep and average flock sizes are larger than in the cereal zone regions. Producers in this region have the greatest opportunity to expand their sheep enterprise as small percentage changes in productivity via management, breeding or technology can produce significant changes in sheep numbers.

Comparison of the cereal zone (L4 and M4) and the wool belt (H4)

The comparison of relative productivity of sheep and cropping across the three regions revealed a sheep ‘production gap’ in the lower rainfall cereal regions compared to H4 (Figure 5). Producers in L4 and M4 were more efficient at converting rainfall into grain than rainfall into sheep products. This may represent opportunities to expand their sheep enterprises.

Figure 5 Sheep production key performance indicators (KPIs) in the L4 and M4 regions, as a percentage of the H4 region

Figure 6 Grain yield for various crops in the L4 and M4 regions, as a percentage of the H4 region

Increasing sheep numbers by reducing cropping

It is feasible to increase sheep numbers by reducing cropping percentages when the lowest yielding crop paddocks are moved back to pasture. This improves the average quality of the cropping and pasture paddocks, and provides an opportunity to increase stocking rates. 

Key opportunities

• The improved margins for sheep enterprises may encourage producers to increase sheep numbers, particularly when combined with the benefits of a mixed farming operation such as weed control.
• Producers in the wool belt have the greatest opportunity to increase sheep numbers due to current flock sizes. They are also more likely to be at the forefront of driving efficiencies and profitability through investment in new management technologies.
• There is a production gap between wool belt and low rainfall sheep producers highlighting an opportunity for low rainfall producers to expand their sheep enterprises.
• Reducing cropping percentages to increase sheep numbers is a feasible strategy.

Sheep producer survey results

Twenty five key producers were interviewed about their management practices and intentions for the future. Participants were from the top 50% of sheep producers, as measured against the Planfarm Bankwest benchmarks, and were spread across the cereal and wool zones. While sheep production was secondary to cropping, all of the producers acknowledged that the enterprises are complimentary.

The key reasons producers gave for running sheep:

• increased productivity – sheep gave producers an opportunity to utilise non-arable land, maximise labour utilisation and utilise low quality feed grain
• improved pastures and cropping (weed control and nitrogen for crops)
• risk mitigation (spreading financial risk in the business, increased cash flow, exit strategies)

Average operation

The average operation was 3593 effective hectares with 37% grazed and 59% cropped. Merino ewes were joined by all but two producers, with almost half also joining older ewes to a terminal sire. Lambing percentage was on average 97% with a joining period of six weeks and weaning at 14 weeks. Producers are aiming at increasing sheep numbers by 5-10% by increasing lambing percentage and keeping more young ewes.

The producers had similar management strategies for sheep including long and short term breeding objectives, culling of dry ewes, early supplementary feeding, monitoring ewe condition and using updated infrastructure. 

All producers surveyed assessed their sheep enterprise performance every year with financial benchmarking or productivity performance (lambs per hectare).

All producers considered the keys to making money in sheep to be producing pasture to drive stocking rate and lambs per hectare, with a non-negotiable focus on animal health. Pasture improvement is a key focus of the business and producers proactively managed stocking rates to seasonal conditions. 

The future

When asked what they would change about the sheep industry, nearly 50% of producers wanted more market transparency and product competition with 24% believing that greater government research, development and extension would increase brand recognition and prices.

Key producer survey findings

• cropping is currently more of a priority to producers in the cereal zone
• there is scope to improve on-farm management with a focus on ewe management, pasture production, increasing lamb survival and lambs weaned per hectare grazed in all regions. Improving management will have the greatest impact in the wool belt where flocks are larger
• producers recognise the potential for improved profitability and productivity through improved management.