Choice of Enterprise

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Contributed by Dr Phil Holmes

Photo of Dr Phil HolmesIf you own or lease a parcel of the Australian landscape, and hope to make a decent living from it, you need to give serious thought to which enterprise(s) in which you choose to engage.

Sometimes it is obvious. If you are located on the Darling Downs (QLD), the Liverpool Plains (NSW), the Wheatbelt (WA), no doubt you will direct and hopefully control all the machinery that goes with cropping. On the other hand, if you are located in the Pilbara, Kimberley, Barkly, Alice Springs or Cape York, you will no doubt choose beef cattle. All good; an appropriate match.

But what about everything else between these two extremes?

What if you have a serious choice? What if you can either rip up a paddock and grow a crop, or run cattle? Further, what if you have a livestock choice, sheep or cattle?

Let’s break this down for the livestock choice and leave the cropping choice aside for this article.

Firstly, if you have a livestock choice, the average sheep flock will be more profitable than the average beef herd in the long-term. There may be runs of years when this is not the case but, over say 20-30 years, on average it is true. However, most importantly, you have to be passionate about your livestock choice as passion is usually accompanied by dedication and improved management skills. It is counter-productive to decide on sheep if you can’t stand the sight of the things; you are unlikely to do well with them if this is the case. The same applies to beef cattle.

There is nothing wrong with running both, provided that the flock and the herd both have sufficient operating scale to warrant a stand-alone enterprise status. If it were me, and my property carrying capacity was 20,000 DSE’s (2,400 AE’s) or less, I would specialise in one enterprise. Serious specialists are always more profitable.

Another consideration is the technical and managerial expertise that is required to make any agricultural enterprise operate to its full potential. This expertise should not be underestimated, as it is often is in agriculture. Does your business have (or have access to) sufficient expertise for more than one enterprise, or should you focus on developing and honing sufficient expertise to do one very well?

In some regions, the NSW New England for example, there is often no choice but to run beef cattle alongside sheep in order to help control sheep worms and manage drench resistance.

So, you have made your choice. Sheep, cattle or both. Let’s start with sheep where there are two choices, wool sheep or meat sheep. Yes only two. Please do not think that you can have two-bob each way and be a winner. This serious delusion has befuddled the minds of too many sheep producers for too long. Sheep are specialists and their owners should be too. They either grow wool or they grow meat.

Sure, you can put a terminal meat sire over wool producing ewes if you wish and sometimes this gives a favourable result. Often it doesn’t because of the direct competition between getting merino weaners out of the death zone and keeping FX lambs going. About the worst sin you can commit is to regard yourself as primarily a wool grower and select for carcase characteristics at the same time. You will languish, believe me. Goodbye to the DP index, hopefully!

Wool growth is most efficient on maintenance feed. Take the humble wether for example. Keep it lean, perhaps CS 2.5 and wool production will be optimised. Creep it up to CS 3.0 to 3.5 and stocking rate must fall. Goodbye to wool produced per hectare because too much of the available dry matter is needed to maintain CS.

The same applies to flock fertility, which is not a profit driver in wool growing flocks beyond that required for the flock to self-replace. Chase it if you will, but consider this. If you jump from 70% lambs weaned to 90%, you will have to sell adult sheep to make room for the additional weaners, assuming you are optimally stocked. If you can absorb the extra weaners, you are under-stocked. If you can’t, your wool production/Ha will suffer. The reproductive rate increase is therefore a stocking rate effect and has nothing to do with flock fertility. How I wish more producers understood this.

For wool flocks, it is all about individual fleece value. At this time, there are flocks out there with more than $100 of fleece value on their backs, and others with less than $30. Can you believe that? What more can I say? Sheep classer comments welcome, if you mob have anything constructive to say.

Meat sheep production is entirely different, as production feed is needed. Unlike wool, meat needs a higher grade of feed available for the best result. Flock fertility comes into play, as does lamb growth rate. However, stocking rate in terms of ewes/Ha still dominates.

Unfortunately, there is a direct positive correlation with ewe bodyweight and fertility. Generally, if we get them heavier, the reproductive rate will increase, but the stocking rate will fall. To the best of my knowledge, there has been no serious attempt to address this issue to date and meat sheep ewes just continue to get heavier, to the point where shearers are starting to object to having to pull them out of catching pens. Some way to go there.

So you are a FX producer. You either mate your CFA ewes to a terminal meat sire, or just buy in merino ewes and mate them for an FX outcome. A good move for the latter mob, provided your ewes have a respectable fleece value. This should be a major consideration for anyone buying in ewes to produce an FX lamb. Fleece value, not ewe liveweight!

You also need to consider the ability to finish. Meat production is about finishing as there are hidden dollars between the store article and the finished article. I despair for those producers who present store lambs and/or weaner cattle for others to profit from. If you have produced these articles, you have borne all the costs of doing so and you have left potential profit on the table for someone else to absorb. Your call!

And so to cattle.

The Australian Beef Report (ABR) spells it all out. The most profitable breeding herds all have higher intrinsic productivity. That is, the reproductive rate is higher, the mortality rate is lower and the turn-off weights are higher. This leads to more kilograms of beef being produced per breeder and if combined with sensible expenditure, will significantly lower cost of production. On the expense side, the single biggest cost of running a breeder herd is labour and labour related expenses. Therefore, labour efficiency is very important.

The answer is not to chase premium markets as they are mostly an illusion. The answer is to maintain a strong focus on lowering the cost of production of a kilogram of beef. The very best herds are operating close to $1.

There are two free lunches with breeding herds; heterosis (hybrid vigour from cross-breeding) and objectively described genetics (Group Breedplan). Both of these need serious consideration as their potential to boost herd performance is remarkable and both of them come at no additional cost.

Some producers choose to run growing herds. We call them growing herds, but others call them backgrounding or trading herds, dependent on location. It is all the same; buying in young cattle and growing them out to either a feedlot entry weight or a grass-fed kill weight.

If you can get this right, it is more profitable than breeding, but beware.

You need production feed to do this well. You need rainfall and inherent fertility in the paddocks assigned to do this. If either are not there, you may struggle. A useful rule of thumb is that much of the risk with growing herds is removed if the country can put on at least 150 kilograms of liveweight per beast per annum.

As well, you need above average skill in managing weight gain, both on the pasture and animal front. Essentially, you are a grass-based lot feeder and in this game, margins are narrow. You have to buy well and manage the whole process well to produce a superior result.

There are not many regions across Australia that will allow you to do this consistently well. Even in the deep south, where rainfall is arguably more reliable and pasture quality is better, cattle trading can be problematic. From experience the mindsets of breeders and traders are different. Breeders need to be steady and patient, where traders need quick thinking and are more tolerant of risk.

For the majority, it is an opportunistic exercise if it is to be profitable. Trade when the price differential and seasonal conditions are favourable, otherwise stay away and do something else. It is, but only for a small minority of producers.

The tragedy is that it is so easy to move into a different world where a beef herd can actually generate serious wealth if you mould it that way. If you don’t mould it, it is likely to consign you to penury, the plight of the majority of beef producers.

The objective of The Australian Beef Report is show those producers who have chosen beef, how to avoid penury.

"I highly recommend this report to anyone regardless of their financial literacy who’s intention is to operate a profitable long term beef production business."

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