A closer look at wool’s place in farm profitabilty

For much of New Zealand’s farming history, the relationship between sheep and wool has been inseparable. But as labour costs have risen, shearing capacity has tightened and wool returns have struggled to keep pace with farm expenses, more farmers are reassessing what actually drives profitability in their sheep systems.

An independent analysis by Phil Tither from Agfirst Pastoral, commissioned by Focus Genetics for the Sheep of the Future programme, set out to answer one question: what happens financially if a traditional crossbred wool flock is replaced with a fully shedding flock?

Using a 770ha Central Hawke’s Bay sheep and beef farm as a case study, Phil modelled a transition from a Romney-based wool-producing flock to a fully shedding flock while holding the cattle enterprise unchanged. The objective was to isolate the impact of changing sheep genetics and management.

The bottom line

The results were striking. Under conservative assumptions, the shedding system improved farm earnings before interest and tax (EBIT) by about $116,000 a year, a 19 percent lift in profitability.

Wool income fell by about $95,000. That was more than offset by an estimated $147,000 reduction in operating expenses and about $64,000 of additional sheepmeat income.

The costs farmers do not see

One of the report’s central findings is that many farmers underestimate the true cost of wool production. Contract shearing is the most visible expense, but Phil concluded it accounts for only about 60% of the total.

The balance sits in labour for mustering and yarding, wool handling, freight, consumables, vehicle use, electricity, dog costs and infrastructure – costs that rarely appear as a single line item and are consequently easy to discount when assessing whether the wool clip is paying its way.

Production gains as well as cost savings

The analysis also identified potential productivity advantages from shedding genetics. Drawing on commercial farm data, Pāmu records, breeder experience and available trial work, the modelling assumed a 4% improvement in lamb survival, lower ewe mortality, heavier lamb carcass weights and a modest increase in stocking rate resulting from lighter ewe liveweight.

Together, those assumptions lifted sheepmeat production by about 7%/ha.

Not an argument against wool

The report is not a case against wool. Crossbred prices have improved substantially and many farmers will be encouraged by that recovery.

But Phil calculated that crossbred wool would need to return about $7.77/kg greasy before the crossbred system generated profitability equivalent to the modelled shedding system. At the time of the analysis, market returns were estimated to be closer to $4.74/kg greasy.

The report also acknowledges that transitioning is not without challenges. Farmers report differences in handling characteristics, variability during the grading-up process and, in some regions, mixed perceptions of shedding sheep in store markets. Independent research directly comparing shedding and traditional flocks remains limited, so some uncertainty remains around long-term performance.

“The key feedback is that some feel we do not have enough hard data to validate the meat productivity gains,” says Phil. “There is a wide range in genetics of wooly crossbreds and some farmers could get just as much gain from buying rams from proven breeders.

“It is worth noting that the breakeven for the estimated savings in total wool related expenses is $5.43/kg greasy. Whether the assumed 7 percent increase in meat per ha occurs and increases the breakeven by another $2.43/kg is something we should all be following with interest in the future.”

Introducing VALORA

The findings align with the objectives of VALORA, the sheep brand being launched by Focus Genetics through the Sheep of the Future programme, developed in collaboration with Pāmu and the Ministry for Primary Industries (MPI). VALORA sheep have been bred to be resilient and fit for purpose across a range of New Zealand farming systems, with the breeding programme focused on resilience, efficiency, adaptability, reduced inputs and production performance.

The name draws on Latin, where valora represents strength, courage and value, and on Te Ao Māori, where ora can be interpreted as health, wellbeing and vitality.

As the programme enters its next phase, VALORA sires will become available to the wider industry, giving farmers interested in shedding and easy-care genetics an opportunity to evaluate their fit within their own systems.

A conversation worth having

The report does not claim a single solution for every farm. It does challenge sheep farmers to look beyond traditional measures of performance and consider the full economic picture.

With continued pressure on labour availability, operating costs and profitability, shedding genetics is becoming a more attractive option – whether through a complete transition or a gradual introduction of easy-care bloodlines.

The numbers at a glance

• Case study: 770ha Central Hawke’s Bay sheep and beef farm
• EBIT improvement: +$116,000/year (19%)
• Wool income: -$95,000
• Operating expenses: -$147,000
• Sheepmeat income: +$64,000
• Sheepmeat production: +7%/ha
• Breakeven crossbred wool price: $7.77/kg greasy (market estimated at $4.74/kg greasy)’

Sheep of the Future is a collaborative programme between the Ministry for Primary Industries (MPI) Primary Sector Growth Fund, Pāmu and Focus Genetics.