Is feedlotting of sheep likely to be profitable?
Feedlotting profitability of sheep in the WA market was estimated to be generally negative or low, based on the input values analysed and regardless of feedlot size or throughput.
Under the scenarios and systems analysed, the greatest influence on profit was the restocker/feeder lamb starting value relative to the trade lamb values. The purchase price of the lambs needed to be 86% or less of the sale price for profits to be possible.
The profitability of finishing lambs is heavily influenced by:
- the value of restocker/feeder lambs relative to the finished trade lambs
- throughput, with operations finishing lambs at or close to their maximum annual throughput having lower depreciation on capital ‘cost’ and greater profit margins
- the timing of purchase and marketing of the finished lamb.
The profitability of finishing lambs is also influenced to a lesser degree by:
- feed prices
- establishment cost
- operational scale, with larger operations likely to return greater profits per lamb than smaller (5000-10 000) systems.
Analysis of historical saleyard prices found that there were strong seasonal price patterns. If forward contract prices are unavailable, historical price variation could be used to estimate finished lamb values from the known purchase price of restocker/feeder lambs and determine likely profitability.
Price patterns indicated that purchasing restocker/feeder lambs during winter to finish in a feedlot was risky. Feedlot finishing of mutton would have limited profitability other than prior to the winter price peak, while the relatively high variability of Merino lamb prices made it difficult to pre-determine likely profitability.
Variations in starter lamb values relative to finished lamb returns represent a threat to feedlot profitability that could be reduced if processors introduced a strong forward pricing mechanism.