Maximising the lamb drop

Based on data gathered from Economic Service survey farms, the 2023-2024 forecast farm profitability before tax is $88,600 (a weighted average across all farm classes). This is almost $40,000 back from the previous season and $100,000 back from the highs of 2021-2022.

The farm classes most impacted by this drop in profitability are high country and mixed finishing operations, where profitability is expected to be back by 47-51% on last season.

The biggest driver behind this drop is high input prices.

They say the last time costs as a percentage of gross farm revenue were this high was in 2005-2008. This has pushed farm expenditure up by 3% on last year and up 16% from 2020.

In Farm Class 8 (South Island mixed-finishing), total farm expenditure as a percentage of gross farm income is expected to be as high as 93%, while the lowest farm expenditure as a percentage of gross farm income is Farm Class 5 (North Island finishing) at 79%.

The potential bright light in an otherwise tough season is lambing percentages which, depending on spring weather conditions, are expected to be higher than average across most farm classes due to ewes going into mating last autumn in good condition.

Lamb prices are likely to be flat although beef prices are relatively good, so depending on the mix of stock classes, may help buffer lamb prices.

Timing of sales and exchange rates will also influence income, but B+LNZ’s Economic Service says overall, farmers will have less money to spend on their families, debt reduction and farm improvements including environmental projects. Early decision-making and some simple management strategies can help sheep farmers make the most of this year’s lamb crop in what is expected to be a challenging season.

Predicted El Nino weather patterns coupled with reduced market returns, high interest rates and climbing input costs could test the mettle of many farmers, but farm systems scientist Tom Fraser encourages farmers to make a plan, focus on the factors they can control and protect the performance of their capital stock.

Have a plan

This, says Fraser, needs to be specific to the farm, it needs to be in hard copy and needs to be revisited every couple of weeks.

Farm partners and staff can all input into the plan which should include key dates for farm operations (weaning, drafting, selling culls) and what levers can be pulled if it is shaping up to be a dry summer.

As an example, Fraser says if it is dry at the end of October the decision might be made to draft all or a proportion of the lamb crop down to 15kg carcaseweight (CW).

“If it is dry at the end of October it might be better to dig deeper into your lambs earlier rather than have a whole lot of light lambs at Christmas. You need to look after your capital stock.”

Fraser says it is important that next year’s production is not compromised by focusing on trying to finish lambs over late summer and autumn rather than partitioning limited feed resources into breeding ewes.

“You’ve got to ensure next year’s production is up to speed.”

Build relationships

 Having a strong relationship with a meat processor is just as important – if not more so – as the relationship farmers have with their bank managers.

“That person is extremely important to the whole farm system.”

Fraser urges farmers to get in early and book killing space as soon as possible. It is easier to cancel than try and book space when everyone else is wanting to do the same.

Farmer to farmer relationships can be extremely valuable, particularly in dry years, and Fraser says as an industry, farmers are not good at building these connections.

In the South Island, if the predicted westerly weather patterns play out, there should be plenty of water in the rivers to provide irrigation to intensive lamb finishers, so store lamb producers could be talking to those lamb finishers as early as October.

“You can aim to get store lambs away before Christmas or put supply arrangements in place through summer.”

Similarly cropping farmers could take ewe hoggets in January to take the pressure off the rest of the farm system.

“We are very poor at building these relationships. We’ve become very singular and not looked at the bigger farming system.

“They should all tie in to some degree.”

Consider early weaning – Particularly twins

Early weaning is a useful management tool, particularly if farms are short of high-quality feed in late October and November.

“There are plenty of farmers successfully weaning at 65-days.”

He says at that stage, ewes are competing with lambs for feed and producing very little milk. While ewes can cope with lower metabolisable energy (ME) 10 feed, lambs need better quality 10.5-11 ME feed and should be prioritised over late spring and summer.

Twins are the best candidates for early weaning as they are getting very little milk between them.

One-year terminal sire ewes can also be weaned early, and the ewes booked for processing, freeing up feed for lambs and other stock classes.

Identifying and selling unproductive stock early

Identifying and drafting off wet dry ewes at tailing rather than at weaning and selecting the final cut of two-tooth replacements early and selling the culls can reduce stock numbers going into summer by as much as 5-10%. This all helps when feed is tight.

Being realistic about financial expectations

Like Fraser, farm consultant Wayne Allan encourages farmers to focus on the factors they can control in what is expected to be a challenging year.

He says farmers need to be realistic about their financial expectations and many can expect red ink on the balance sheet at the end of the year, although most sheep and beef businesses should be able to sustain modest cash losses for a year or two.

With El Nino weather patterns predicted, Allan says his advice to farmers is to try and make as much money before it gets dry.

This might mean investing in nitrogen to boost pasture growth and therefore lamb growth rates.

“It’s important to be fully feeding, lactating and growing stock.”

Looking at planning strategies in what is a potentially dry summer, Allan says there are three factors to consider in a dry year; soil moisture, pasture covers and stock condition and to try and protect as many of these as possible.

While soil moisture is the first to go, management strategies such as destocking to maintain pasture covers will help protect the condition of capital stock.

“After weaning, the focus should go on protecting capital stock for next breeding season.”

He encourages farmers to think in the long-term and avoid making short-term decisions that might damage their business in the long-term.

If re-grassing or cropping, spraying the paddock out early and leaving it in fallow will help conserve soil moisture before the crop is established, but Allan encourages farmers to get the pasture or crop in as early as possible, before it gets too dry.

In year of high input prices, Allan says there is some leeway with both fertiliser and repairs and maintenance, but points out that an easing in fertiliser prices will mean the fertiliser budget will go further this year.

If Olsen P levels are reasonably good, then maintenance applications could be cut by 30-40 percent which is a more favourable option than not applying fertiliser at all.

Delaying applications until autumn will also work as farmers will have more idea of how their budget is tracking.

Farmers who lamb early can consider getting rid of store lambs before the price drops too much but most importantly, farmers should be crunching the numbers on trading versus finishing for all stock classes. This needs to take into account the opportunity costs of the stock on-hand.

Strategies that work well in drought years

Drawing on his experience of working with farmers in North Canterbury’s prolonged drought, Allan says making decisions early and acting upon them will pay dividends.

Grazing stock off-farm is often a more favourable option than buying in supplementary feed. Removing stock cuts their pasture requirements by 100% as opposed to feeding supplement which just cuts pasture requirements by about 50%.

While it can be difficult, personal drawings could be reduced and capital replacement programmes deferred, but it is difficult to cut back on farm operating costs when most farmers are running very efficient operations.

Never waste a good crisis

This was one of the take-home messages from one of Beef + Lamb New Zealand’s webinar series ‘Sow, Grow and Thrive; bouncing baa-cck from tough times.’

Sheep and beef farmers Matt Tayler and Pat Crawshaw discussed their strategies for the season ahead, including changing their mindset and taking the opportunity to reassess what drives their business. They are also looking at ways they can make incremental savings and instill business disciplines that will put them in a good position to recover quickly.

Matt, who along with his wife Shona farms Lorne Peak, a 6000ha sheep and beef operation near Garston in Southland, says adversity is a great learning experience.

It has been through periods of adversity that they have changed their farming system for the better and while they are carrying a lot of debt on the back of a recent growth and development phase, Matt says he is feeling energized about the opportunity to reset their business.

“But it has taken me six months to rise to the challenge.”

Over the five years Pat and his wife Isabelle have been farming at Patoka in the Hawkes Bay they have faced drought, a TB outbreak, Covid, a slew of government regulations and Cyclones; the latter being by far the most destructive and disruptive.

They were also B+LNZ Monitor Farms and the support networks they put into their business over that time are now standing them in good stead.

On top of having to rebuild their farm system after the devastation wrought by Cyclone Gabrielle, interest rates on their considerable debt have over doubled.

Pat describes interest rates (as a percentage of their Gross Farm Income), as their biggest challenge and this puts a huge amount of pressure on them. It is also a factor they cannot control.

They are very frank with their bank manager about what that looks like for them, but their focus is on the factors they can control.

Fertiliser and freight are next big-ticket items (as a percentage of Gross Farm Income) and Pat and Isabelle are looking at ways they can make incremental 1-2% savings on all input costs.

“We’re going line by line and seeing where we can make some more wins along the way.”

He stresses the importance of having good long-term relationships with the many people in the farm team (accountants, bank managers, processor, fertiliser reps, agronomists etc) who can offer support, advice and reward loyalty.

Matt says their business has grown significantly since it was just him and father running the property and now with six staff, he does find it challenging to ensure they continue to be well looked after while the business is under financial pressure.

Staff are their biggest asset and he is aware they are also facing significant increases in the cost of living.

Both Matt and Pat talked about having trigger points in their businesses (Matt’s are climate-related) and having plans B, C and D ready to implement.

Pat uses Farmax modelling using soil moisture and temperature data as a decision-making tool and every month he reviews how they are tracking financially. A more in-depth budget review is carried out every two to three months.

Matt says he learnt from a mistake he made some years ago when he was too afraid to look at his accounts for six weeks. He now checks his accounts every two to three weeks keeping a close eye on working capital and works to a simple budget which is reviewed periodically.

Both stressed the importance of having a clearly defined vision for their business and values that support that business. This gives bank managers and accountants a clear idea of where the business is heading, and the financial support needed.

Matt and Pat both have interests off-farm which play an important role in their mental and physical wellbeing.

Pat plays hockey and Matt is a volunteer fire-fighter and both interests give them the opportunity to get away for a short time and talk to people from outside of their business.