Changing sheep systems to increase profit

1. Changing sheep systems to increase profit By Jonathon Tocker, Tom Jackson, Bill Malcolm, Janna Heard, Alex Sinnett

2. What did we do? • We looked at some ideas that could be good ideas for improving the rewards from producing prime lamb.

3. What did we do #1? • We looked at 15 areas of improvement in a lamb producing system that might be worthwhile researching further.

4. What did we do #2? • We looked at 4 development options over a 7 year planning period for a real case study farm in south-west Victoria.

5. #1: The ideas for research were • Increase weaning and stocking rate on same land area • Increase ewe and lamb feed efficiency • Increase weaning percentage • Increase ewe longevity • Reduce ewe mortality • Increase lamb growth rate, 50kg turnoff • First ewe mating at younger age, same and different prices • Increase wool weight • Reduced health costs

6. The winners were: (substantially better profit than the base case) • Increase weaning rate and stocking rate • Increase ewe and lamb feed efficiency and lamb turnoff • Increase ewe feed efficiency • Increase ewe longevity and reduce ewe mortality • Increase stocking rate • Increase weaning rate, same stocking rate

7. The less effective changes were: (still improved profit of the base case but not by a lot) • Increase wool price/weight • Increase ewe longevity no decrease in mortality • Decreased ewe mortality • Mating at 2 years, lower prices for ewes • More lambs to 50 kg in same time • Increase fleece weight • Increase lamb feed efficiency plus turnoff • Increase lamb feed efficiency/reduce age to sale • Reduced health costs • Mating at 2 years unchanged prices (was worse than base case)

8. What about Risk?

9. #2: Whole Farm Analysis (ii) • Lamb Directions analysis • Analysing investment in changes in to lift profitability on lamb farm case study in south-west Victoria:

10. Criteria: Profit, Cash, Wealth, Risk • Operating profit/EBIT as Return to Capital Managed (economic efficiency) • Net Cash flow before and after debt servicing (financial viability) • Growth in Wealth (change in equity from farming) • Risk (variability of these measures over time around their means)

11. Case Study Farm 1 – Prime Lamb South-West Victoria Base Farm 1. Increasing stocking rate 2. Increase land area 3. Increase stocking rate and land area 4. Increase lambing %

13. Good Investment? Return on the extra capital

14. Return on whole farm total capital after change

15. Increase in wealth by end of year 7 • Increased stocking rate, increased lambing percentage and buying land and increasing stocking rate on it (no real gain in land value) all added around $400,000 to net worth above where the farmer would otherwise reach by continuing with business as usual (Status Quo). • Buying the extra land and not improving it, and paying 9% interest on the lot, added next to nothing to wealth.

16. Risk and increase in wealth with each option by end of year 7

17. Risk and increase in wealth by end of year 7

18. Financing the changes; Cumulative net cash flow

19. How Financial Risk of the Changes (Gearing) adds to Business Risk (Prices, Yields) and increases Total Risk

20. Probability of servicing extra debt from the changes (if average conditions occurred)

21. Probability of servicing extra debt from the changes (if average conditions occurred)

22. Time taken to achieve 100% equity (if average conditions occurred)