Economic Analysis of Sheep Production Systems

Summary

Australian sheep producers in most production regions are questioning traditional assumptions about the most appropriate and profitable enterprise for their areas and production systems. Factors driving change include current price relativities for the three major products wool, lamb and mutton. Future price expectations, price volatility and production risk for alternative production systems, and potential for productivity gains in different enterprises are other factors which producers consider.

Hassall & Associates have estimated the profitability of 12 alternative sheep production systems using gross margin analysis. A range of scenarios and prices are analysed. These include current prices (average of the past 12 months), historical prices (the past 5 and 10 year averages), and predicted prices for the next 5 years (ABARE estimates). The analyses also examine the impact of achievable changes in productivity.

The following results are provided to highlight differences in profitability between sheep enterprise types under a range of commodity market conditions. The graph below provides estimated gross margin returns per hectare in the Wheat / Sheep Zone for 6 of the 12 enterprises. Broadly, we can see that the returns across enterprises are similar and the prices in the past year have provided higher returns than both the past 5 years and those predicted for the next 5 years.

At current prices, production of prime lambs sired by either terminal or maternal sires out of medium and strong wool Merino ewes are the most profitable. Highly productive Merino ewe flocks, run at high stocking rates on quality pastures and with active grazing management, have the potential to achieve highly competitive profit levels from both apparel wool and prime lamb production.

Comparing sheep production systems it can be seen that that Merino production is profitable and provides a large number of enterprise options to suit different environments and farming systems.

Analyses of data from sheep enterprise benchmarking services show that the highest profitability flocks produce 50 to 70% higher income per dse and per hectare than low profitability flocks. Analyses also indicate that wool production per hectare and lamb production per hectare are the most important drivers of these differences in income.

The three really important tools that wool and sheep meat producers can use to increase output per hectare (of wool and / or meat) and therefore have the biggest possible impact on profitability, are stocking rate, lambing rate and the genetics of their animals.