Is it better to fill the feedlot once or keep it full year-round?
A 5000-head system might finish 5000 lambs a year (capacity) up to 43 333 a year (maximum throughput). Maximising lamb throughput was more profitable than finishing to feedlot capacity, because the fixed costs were spread over a greater number of lambs.
Increasing throughput significantly reduced depreciation cost on capital when costed as a dollar per lamb value. It also produced higher profit margins (or lower losses), and reduced margins between ‘capacity’ and ‘maximum’ profit range as operational size increased.
How is feedlot profitability affected by changes in the prices for feeders, trade sheep or the ration?
Various feedlot scenarios were developed around a detailed 5000-head capacity feedlot model farm unit. Economies of scale and increased efficiencies were factored into larger operations as a 2.5% reduction in capital costs per 5000-head capacity increase.
A sensitivity study examined the amount that prices of restocker/feeders, trade lambs and the ration could change and the enterprise still make a profit.
Examination of historical seasonal prices had established, relative to the average, the following historical peaks and troughs:
- restocker/feeder prices +7% (April) and -10% (November)
- trade lamb prices +11% (July) and -17% (November)
For the study, average 2017 WA prices for restocker/feeder and trade lambs per head were used as base costs, and varied by +/-5% and +/-10% to simulate price variability.
The analysis showed that profit margins from 10 cents (c)/head to $14.80/head were possible based on the input values analyzed, provided the relative price in cents per kilogram (c/kg) of the restocker/feeder was 86% or less of the trade lamb price.
|Profit||Change on |
base restocker/feeder price
|Change on the |
base trade price
20 000-head at capacity(finishing 20 000 a year)
|$14.80/head||-5%||+10%||50 000-head at maximum throughput annually (finishing 433 333 lambs a year)|
Movements in ration cost of +/-5% had only minor impacts on profitability.
How should the industry develop large-scale feedlots in WA?
It is recommended for future development of large-scale feedlot systems within Western Australia that:
- a thorough cost/benefit analysis be conducted prior to feedlot development regardless of scale
- any feedlot system budgeting analysis should consider restocker/feeder to trade lamb price ‘relativities’, and lamb throughput should be maximised to spread fixed costs over more lambs
- greater emphasis be placed on modifying lamb supply patterns to minimise seasonal price variations
- consideration be given to the:
- development of producer run smaller scale (3000 to 5000 head) feedlot systems with minimal infrastructure cost, reducing operational and financial risk
- development of small (3000 to 5000 head) to medium (10 000 to 20 000 head) scale producer/feedlotter alliances to ensure continuity of supply and quality control within producer operated systems
- development of medium scale (10 000 to 20 000 head) feedlot systems supported by processor bodies responsible for coordinating lamb supply, reducing operational and financial risk
- development of medium scale (10 000 to 20 000 head) feedlot systems paid a management fee to finish lambs sourced/supplied by processor bodies, reducing operational and financial risk
- development of large-scale (30 000+ head) feedlot systems by processor bodies who are responsible for coordinating lamb supply and operational/financial risk
- development of processor/feedlotter producer alliances based on contract backgrounding of lambs prior to feedlotting. Such alliances would be of greatest benefit during the spring lamb price trough period when a majority of annual lamb purchases could be made and stubble, summer forages, and perennials could be utilised.