By Allan Barber
The ANZ Red Meat Sector Key Insights Report, released earlier this week, highlights some encouraging signs for the beleaguered beef and sheep farmer.
According to the findings of the report 65% of red meat farmers surveyed plan to increase production in the next three to five years, with 69% planning to invest in animal genetics and more than half seeing benefit from obtaining expert help to improve farm productivity.
The report stated that while structural issues within the industry remain unresolved, many farmers have an expectation that solutions are emerging that will lead to better integrated supply chains.
The immediate response of the Meat Industry Excellence Group’s chairman, John McCarthy, was that farmers shouldn’t be complacent just because prices looked better at present.
He emphasised the long term problems remain unresolved.
Of course this is a debate between the ‘cup half full’ and ‘cup half empty’ schools of thought and both make valid points. It is really encouraging to see sheep and beef farmers intending to reinvest in their farm enterprises, but I also see McCarthy’s viewpoint which is along the lines of ‘one swallow doesn’t make a summer.’
However as a matter of interest I received an email from a South Island sheep farmer recently which painted a very positive picture of the lot of red meat farmers.
Without blowing his cover by identifying him, I believe his comments are inspirational and well worth repeating.
I just wanted to convey to you our year’s results without the help of FARM IQ, or much technology, but enough for a 60 year old not to not get lost with: 500Ha, 6000 ewes plus 1500 hoggets, 7500 SU, sold 6200 lambs 19.5 kg average weight @ $105 and kept 1500 replacements.-
This worked out at income $120/SU, farm working expenses $60/SU, debt servicing (including principal repayment $40/SU) leaving $20/SU for the boss and me to pay tax and take drawings. We curtailed the development and surprised ourselves by getting farm working expenses down to half the income.
I didn’t want to appear to be blowing our trumpet but in an average type of year we got a fair result to reinforce why we are such committed and satisfied sheep farmers. It is a return of 13-14% on the capital we have invested in the business over 30 years, and all done by ourselves with the kids helping in holidays.
There must be hundreds of cockies toiling away, as happy as we are, keeping their heads down and grateful to own a sheep farm to raise kids, educate and see them make their way successfully in their professional careers.
Disillusioned? Dysfunctional? Not around here!
My contact also assures me that he has a great relationship with his processor.
With that sort of attitude, you would think the rest of the red meat sector ought to be rolling along without major problems other than the need to keep on using common sense, working hard and managing the cashflow.
On the negative side of the picture, those red meat farmers who have substituted dairy grazing for finishing lambs may find the need for their services less in demand from dairy farmers faced with a payout possibly less than $6 a kilo of milk solids.
The cost and availability of replacement ewes may be beyond their financial resources having got rid of their capital stock.
But the optimistic view provided by the ANZ Report and the story from my South Island correspondent give me hope that things may genuinely be improving.
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Allan Barber is a commentator on agribusiness, especially the meat industry, and lives in the Matakana Wine Country where he runs a boutique B&B with his wife. You can contact him by email at allan@barberstrategic.co.nz or read his blog here ». This article was first published in Farmers Weekly and is here with permission.
8 Comments
Is it just me or is this farmer described above massively overstocked? These stocking rates might work in if you have irrigated land or summer safe country but every farm is different. It is very likey that this guy would be selling store lambs in a drought for $45. Farmers who are overstocking are only crashing the market for the rest of us.
sorry for ther tag along reply but Interest.co.nz has opened another page inside the comment box...again...
500Ha
7500 SU
$20/SU = $150,000 for two families
$105/sold SU * 6200 = $651,000 gross income.
whats the retained earnings?
500ha is worth how much? $7 Mil?
that's 2% return???? (for wages - no retained earnings)
9.3 gross yield (no ownership associated costs. 9.3% - 2% ratio of 7.3 : 2 costs:earnings)
Oh... but you're _happy_ with the return on capital invested __*30*__ years ago??
You've taken 30yrs to get 2% return?
500Ha, 6000 ewes plus 1500 hoggets, 7500 SU, sold 6200 lambs 19.5 kg average weight @ $105 and kept 1500 replacements.-
This worked out at income $120/SU, farm working expenses $60/SU, debt servicing (including principal repayment $40/SU) leaving $20/SU
The other thing to note about the farmer above is that there is no talk in the article about anyone in his family taking over his farm. When i started farming the farm i'm on 17 years ago it had a gv of about $400,000 and we were getting about $50 for a fat lamb now the gv is about 1.2 million and we are getting $100 for a fat lamb. And the reality is that if you put it on the market you might get about $2 million for it. The farm is a steep hill country farm. I put up a new fence 8 years ago it cost about $15000. For a similar length fence i put up last summer it was $30,000. What I'm saying is the big problem for sheep and beef is that the numbers don't stack up well for the next person to take over the farm. Go to a sale yards and see the amount of grey hair in our industry. If farm ownership goes from families into investors and corporates it will destroy rural communities as profits disappear into investors pockets. How much has NZ really benefited from the dairy boom. Everyone has pushed up the price of dairy land taken on high debt, but how much of that money has gone back into rural communities? I would suggest most of it has gone to paying back Austrailian banks.
Tim, Tongue in cheek comment - I would say many sheep farmers have benefitted from the dairy boom, as most of the conversions were originally sheep/beef farms. ;-)
We recently heard from a dairy farmer looking at a conversion in an area where there aren't a lot of dairy farms. The sheep farms they looked at have a gv of $1.8 - 2.3m. The sheep farmers selling them are wanting over $6m for them. Given the areas location and the challenges it brings for dairy, these prices are way too high. The dairy farmer has consequently decided to look elsewhere, and these farms continue to sit for sale, as they have been for some time now. The sad thing in all of this as I see it, is the area would be a great 'first farm' area for young sheep farmers. We have two sons - one sheep farming, one dairy. Using the career pathway offered by dairy, it is possible for our dairying son to reach his eventual goal of farm ownership. As to our sheep farming son, I haven't a clue how he will acheive the same. The career pathway options don't appear to be there like dairy and from a look at the numbers, as you say, the numbers don't really stack up for a young farmer looking to buy.
yeah, maybe sheep and beef farms will get cheaper in the future as investors and corporate farmers will see low returns. I think these types of farms suit individual ownership as you can't afford to spend alot on wages. It's better spent on fertiliser and fencing.
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