Newsletters

Ovine Observer

Comparative analysis of gross margins for grain and sheep enterprises in the central and high rain fall regions of the Western Australia (WA) wheat belt

Ashley Herbert, Agrarian Management

This is the first of three parts that make up the report. Parts two and three will be published in the next Ovine Observer in December.

The aim of the study is to “determine the comparative gross margins for a range of enterprises in the two main growing regions of WA”.

The scope of the study is to provide a report on a gross margin analysis of the key cereal and oilseed enterprises (wheat, barley, canola) and three sheep enterprises (wool production with live export turn-off, self -replacing Merino flock with 30% prime lambs and specialist meat production).

1. Historical review of farm benchmarking data from two consulting firms, Agvise Management Consultants and Agrarian Management, comparing the performance of wheat, barley, canola and sheep enterprises.

The information presented is a gross margin analysis of farm benchmark data sourced from two consulting firms:

1. Agvise Management Consultants

2. Agrarian Management

The data has been collected from clients in the two areas indicated in Figure 1 and covers the five year period of 2011 to 2015. The analysis is based on assessed profit in each season and includes all direct input costs as detailed in Table 1.

Table 1 Income and costs included in farm benchmark summary
  Crop Sheep
Income

Grain income-farm gate

Value of retained grain

Wool proceeds (NIB)       

Livestock trading profit
Costs

Fertiliser

Chemical

Seed

Contracting

Fuel

R & M

Insurance

Plant replacement

Fertiliser

Shearing, crutching, mulesing

Stock requisites

Contractors eg dipping

Supplementary feed

Agistment

Fuel

R & M

Plant replacement

Cereal Sheep Zone (CSZ) – Area from Bruce Rock to Tammin

Production

line graph showing crop yields for cereal sheep zone for seasons 2011 to 2015
Figure 1 Crop yields for cereal sheep zone for seasons 2011 to 2015. Average yields for the period- Wheat 1.85t/ha, Barley 1.97 t/ha, Canola 0.87t/ha

Points to note:

1. High level of yield variation between years for all crops.

2. Canola yields are more variable than cereals

3. There is significant variability between individual farms in each year.

4. Average proportion of farm cropped is 74%.

Table 1 Sheep production summary for the cereal sheep zone for seasons 2011-2015
  Average 2011 2012 2013 2014 2015
Stocking rate (dse/ha) 3.7 3.4 3.1 4.7 3.6 3.9
Lambing % 84% 79% 88% 82% 88% 85%
Wool production (greasy kg) 20,018 19,631 20,036 18,478 21,757 20,188
Number sold (hd) 1,678 1,425 1,585 1,957 1,459 1,963
Pasture area (ha) 1,470 1,549 1,791 1,311 1,383

1,317

Points to note:

1. Stocking rate increase in 2013 was most likely due to increased crop area.

2. Average lambing rate of 84% above the state average.

Gross margin

line graph showing cereal sheep zone enterprise gross margin
Figure 2 Cereal sheep zone enterprise gross margins. Average GM crop $234/ha, Sheep $102/ha

Points to note:

1. Average crop gross margin is significantly higher than sheep

2. Crop gross margin is highly variable between years - $102 - $425/ha.

3. Sheep gross margin is relatively stable between years.

4. In two of the five years there was little difference between the two enterprises.

Not surprisingly, cropping was clearly more profitable than sheep through this period.  However, it needs to be noted that the productivity of the sheep enterprise is grossly constrained by the role pasture plays in the crop rotation.  In most cases, pasture is simply an artefact of what germinates in the paddocks not cropped.  For the most part, little improvement is done to pastures and fertiliser is not routinely applied.

High rainfall zone (HRZ) – Area west of Katanning and Cranbrook to Kojonup

Production

line graph showing crop yield for cereal sheep zone for seasons 2011 to 2015
Figure 3 Crop yield for Cereal Sheep Zone for seasons 2011 to 2015. Average yields for the period – Wheat 3.15t/ha, Barley 3.27 t/ha, Canola 1.59 t/ha

Points to note:

1. Considerably less variation between years than in the CSZ.

2. Canola yield variation is similar to wheat and barley.

3. There is significant variability between individual farms in each year.

4. Average proportion of farm cropped 55%.

Table 2 High rainfall zone sheep enterprise production data for the seasons 2011 – 2015
  Average 2011 2012 2013 2014 2015
Stocking rate (dse/ha) 10.2 9.9 11.2 10.5 9.7 9.6
Flock (hd) 8,002 8,066 7,260 8,468 9,086 7,142
Ewes joined (hd) 4,366 4,822 4,134 4,029 5,007 3,713
Lambing % 88% 86% 93% 86% 87% 88%
Wool production (greasy kg) 39,568 34,601 41,276 41,247 44,672 37,572
Number sold (hd) 3,420 2,896 3,025 3,715 3,279 3,954
Pasture area (ha) 959 976 860 987 1,025 950

Points to note:

1. The sheep flocks are 100% merino.

2. Majority of lambing occurs in July/ August.

3. Average lambing rate is high at 88%.

The decline in stocking rates from 2012 is possibly in response to increasing crop profitability (Figure 5) and a desire to “simplify” the farm operation. Crop area increased from 47% of farm area in 2011 to 60% in 2015 in response to the increased returns from crop.

line graph showing HRZ enterprise gross margins
Figure 4 HRZ enterprise gross margins. Average GM – Crop $370/ha, Sheep $295/ha

Points to note:

1. Considerably less difference between the crop and sheep enterprise gross margins than seen in the CSZ.

2. Sheep gross margin variable.

3. Less difference in the variability between the two enterprises compared to the CSZ.

It is interesting to note the contrasting patterns of crop gross margin between the two data sets.  The average crop gross margin in the CSZ was driven by an extremely high level of profitability in one season (2013).  While in the HRZ, the average gross margin was driven by the very low profit year of 2015.

Variation between farms is significant

Gross margin variations in high rainfall zone for:

line graph showing gross margin variations in high rainfall zone for crop and sheep enterprise
Figure 5 Crop Enterprise                                Figure 6 Sheep enterprise

A danger of looking at group averages is that it fails to highlight the normal level of between farm variation in physical and financial performance.  Figures 5 and 6 illustrate the range in farm performance for the crop and sheep enterprise gross margins. The shaded area represents the range in gross margins for each enterprise in each year.

In any one year the between farm variation far exceeds any difference between the enterprises.

The message from this is that the enterprise averages only provide a broad guide as to relative profitability of the farm enterprises. Individual performance is highly variable in each year.

Pages