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Livestock Farm Monitor Project Victoria 2014 / 2015

Further information regarding the Livestock Farm Monitor Project may be obtained from:

PAUL BLACKSHAWDepartment of Economic Development, Jobs, Transport and Resources124 Chiltern Valley RdRutherglen [email protected]

MATT OUGHAg Answers: A specialist insights division of Rural Finance and Rural Bank57 View StreetBendigo [email protected]

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CONTENTS

THE YEAR IN REVIEW 2

State Summary 2Wool 3Lamb 3Beef 3Feed 3Weather 4

ABOUT THE RESEARCH AND ACKNOWLEDGEMENTS 5FARM MONITOR METHODOLOGY 6PROFIT MAP 7GIPPSLAND 8

Fast Facts 8Whole farm financial characteristics 8Wool 10Lamb 10Beef 11

NORTHERN VICTORIA 12


SOUTH WEST 16


GLOSSARY 20ABBREVIATIONS & STANDARD VALUES 21


THE YEAR IN REVIEW

STATE SUMMARY

Average profitability for Victorian livestock farmers increased in 2014/15 compared to the previous year. Earnings before interest and tax (EBIT) increased from $42/ha in 2013/14 to $133/ha in 2014/15. Return on assets showed a small improvement from 1.8% to 2.1% and all other profitability indicators, including gross farm income and return on equity also increased (Table 1). The increased profitability was mainly driven by improved cattle prices, however the spectacular rise in cattle prices occurred in the second half of the year when many participants had already sold their stock. Wool and lamb prices were variable from region to region, but remained similar to last year. Stocking rates were similar and wool, lamb and beef production per hectare were all higher compared to the previous year. However, this came at a price with variable costs, in particular supplementary feed and agistment costs, increasing this year as a result of a much drier year. Long term average rainfall over all participating farms is 685mm, while an average of only 532mm was recorded in 2014/15.

Table 1. State summary

2013/14 2014/15

Gross farm income ($/ha) 569 633

Earnings before interest and tax ($/ha) 42 133

Return on assets 1.8% 2.1%

Return on equity 0.6% 1.5%

In 2014/15 farm profitability was the second highest in recent history of the Livestock Farm Monitor Project as shown in Figures 1 and 2.

Figure 1. Average earnings before interest and tax (EBIT)

Figure 2. Return on assets and return on equity comparison

Across the state, lamb was the most profitable enterprise returning earnings before interest and tax of $173/ha followed by beef with $144/ha and wool with $45/ha. Beef showed a dramatic improvement this year up from $49/ha the previous year (Table 2).

Table 2. State enterprise earnings before interest and tax (EBIT)

2013/14 2014/15

Wool earnings before interest and tax ($/ha) 26 45

Lamb earnings before interest and tax ($/ha) 150 173

Beef earnings before interest and tax ($/ha)

49 144

Participant farms were selected according to farm size, location and enterprise mix. The distribution of farm sizes is shown in Figure 3.

Figure 3. Distribution of farm sizes

Livestock Farm Monitor Project Victoria 2014 / 2015 2

WOOL

Wool prices were less volatile in 2014/15 compared to 2013/14. Price remained flat for much of the year from July to April. Demand for fine wool increased late in the

year to push the indicator higher, finishing the financial

year 23% higher than June 2014.The premium between fine and medium micron wool finished the year at 175c/kg clean up from 94c in June 2014. This highlights improved demand for fine wool.China continues to be the main export market for Victorian wool, the quantity exported was 16% higher in 2014/15 compared to the previous year.

Figure 4. Southern Wool Market Indicator

Data: AWEX

LAMB

The Eastern States Trade Lamb Indicator finished the year at almost the same point as June 2014. The difference for 2014/15 was the price in spring. Instead of the traditional bottoming out, the price climbed earlier and more quickly driven by strong demand. The average indicator price in 2013/14 was 487c/kg CWT in 2014/15 it was 520c/kg CWT.2014/15 was a reasonable year for Victorian sheep meat exports which were 2.6% higher compared to the previous year. Lamb exports alone were up 7.3%. Victoria’s largest markets remained the USA and China.

Figure 5. Eastern States Trade Lamb Indicator

Data: MLA

BEEF

The price for cattle in 2014/15 started the year steady before rising sharply from December to June. A favourable combination of demand from the USA and high slaughter rates in Australia sparked the trend which has aided confidence in the industry.The Eastern Young Cattle Indicator closed the year at 530 cents per kilogram carcass weight, 194 cents higher than the previous year.Victorian beef exports were strong in 2014/15, up 22% on the previous year. The USA, China and Japan were Victoria’s key beef export markets.

Figure 6. Eastern Young Cattle Indicator

Data: MLA

FEED

Victorian hay prices trended higher for most of the year, and demand remained high, quickly depleting local supply.Feed wheat was cheaper in 2014/15, feed barley was more expensive being the more popular choice of farmers feeding stock.

Figure 7. 2014/15 Victorian feed grain price

Data: Profarmer


WEATHER

Weather conditions in Victoria were variable in 2014/15. Rainfall in the central and western parts of the state was below average to very much below average, with parts of the south west receiving lowest on record rainfall. West Gippsland was below average while east and central Gippsland were average to above average.The critical spring months were particularly affected with most of the state receiving below average to very much below average rainfall in August, September and October 2014. There was some summer rain with most of the state receiving above average rainfall in January, however not all livestock enterprises are able to capitalise on rainfall at this time of year. The autumn break was average, apart from areas of central and western Victoria receiving below average rainfall. The focus then moved to predictions of an El Nino for the 2015 spring. Temperatures for the state were generally above average, particularly over spring and summer. January was the exception with average temperatures and a noticeable lack of really hot days. The temperatures during autumn and the early part of winter were average to cooler than average with a high number of frosts.The regional chapters provide more detail on the 2014/15 seasonal conditions.

Figure 8. Victorian rainfall deciles July 2014 to June 2015 (BoM, 2015)

Source: Bureau of Meteorology

Figure 9. Victorian temperature deciles July 2014 to June 2015 (BoM, 2015)

Source: Bureau of Meteorology


About the research and acknowledgementsThis report has been prepared through collaboration between the Department of Economic Development, Jobs, Transport and Resources, Rural Finance and Rural Bank. The Livestock Farm Monitor Project surveys farms to collect physical and financial information. Participant farms are selected according to farm size, location and enterprise mix. The results published in this report should not be taken to represent true averages because the farms are not selected at random. This year 75 livestock farms participated. The distribution of cattle and sheep numbers are shown in Figures 10 and 11. Not all 2013/14 participants are in the 2014/15 report and there are new participants in this year’s dataset. Therefore, care needs to be used when comparing the previous and current year’s averages due to the variation in the dataset between years.

The method employed to generate the production and profitability data in this report is consistent with that used in previous Farm Monitor Project reports. Not all benchmarking programs use the same method or terms for farm financial reporting and the allocation of items such as overhead costs and owner operator allowance against the farm enterprises will vary between financial benchmarking programs. Standard dollar values for stock on hand and dry sheep equivalent (DSE) ratings of livestock may also vary. For this reason, the results from different benchmarking programs should be compared with caution.The Department of Economic Development, Jobs, Transport and Resources, Rural Finance and Rural Bank are grateful for the cooperation of Victoria’s livestock farmers who have contributed their data to this project.

Figure 10. Distribution of cattle numbers

Figure 11. Distribution of sheep numbers


Farm Monitor Methodology

This section explains the key figures used in the Livestock Farm Monitor Project and the method for how they are calculated.In this section we explain the key figures used in the Livestock Farm Monitor Project and how they are calculated.The method employed to generate the profitability and production data in this report was adapted from the method described in The Farming Game (Malcolm et al. 2005) and is consistent with that used in previous Livestock Farm Monitor and Dairy Farm Monitor Reports.The Livestock Farm Monitor Project measures the performance of livestock farm businesses using four key farm business performance indicators. Earnings before interest and tax and return on assets indicate the operational efficiency of the farming business. They provide a useful indicator to make comparison between farms as they show the returns to capital invested in the business. Net farm income and return on equity show the returns to an individual’s equity. They are influenced by the amount of debt and interest and lease charges on an individual farm. To calculate these performance indicators, the Livestock Farm Monitor Project collects data about farm income, costs, assets and liabilities for the financial year. The ‘Profit Map’ on page 8 illustrates the framework of the methodology.

EARNINGS BEFORE INTEREST AND TAX (EBIT)

EBIT is the return from all capital used in the business. As different farms have different capital structures, the Livestock Farm Monitor Project uses EBIT to compare farms based on their main farming business, irrespective of how the business sources its capital.Before 2013/14 Livestock Farm Monitor reports EBIT had been referred to as ‘operating profit’.

RETURN ON ASSETS

Return on assets (RoA) indicates the overall earning of the total farm assets, irrespective of the capital structure of the business. It is EBIT expressed as a percentage of the total assets under management in the farm business, including the value of leased assets. This is the return from farming.There is also a further return to the asset from any increase in the value of the assets over the year, such as land value. If land value goes up 5% over the year, this is added to the return from farming to give total return to the investment. This return to total assets can be compared with the performance of alternative investments with similar risk in the economy.

NET FARM INCOME

Net farm income is the final measure of profit for the farm business. It is what remains after all costs, including interest and lease costs, have been deducted from income. Net farm income is then used to pay tax and consumption, and what is left over is surplus, and therefore growth, as it can be invested into the business to expand the equity base; either by direct reinvestment or the repayment of debt.

RETURN ON EQUITY

Return on equity (RoE) measures the owner’s rate of return on their own capital investment in the business. It is net farm income expressed as a percentage of equity.The Livestock Farm Monitor Project reports RoE with and without capital appreciation. This is to distinguish between productivity gains (RoE without capital appreciation) and capital gains (RoE with capital appreciation).A healthy business will be in a strong position in all indicators. However, at some stages of the farm business cycle some indicators may appear unfavourable, such as the case of farm improvements decreasing equity in order to improve profits in the future.


Descriptions of the other financial indicators highlighted

in the Profit Map are provided in the Glossary.


Profit Map


GIPPSLAND

Seasonal conditions in 2014/15 were variable, but generally quite good. Areas of west and south Gippsland had a wet winter which impacted on lambing ewes and resulted in some lamb losses. Although the spring was drier than average, timely rainfall events kept green feed available well into summer. Improved beef prices encouraged producers to sell early which reduced stock on hand, but also may have brought slightly unfinished stock on to the market, impacting income.

FAST FACTS

Table 3. Gippsland whole farm physical summary

Average Top 20%*

Sheep (head) 2,468 2,117Cattle (head) 496 489Labour efficiency (ha/person) 404 293Labour efficiency

(DSE/person) 6,964 7,471

Hectares 619 463

*Top 20% ranked by EBIT per hectare

In 2014/15 beef remained the dominant enterprise for both the average and top 20% of livestock farms in Gippsland

Table 4. Gippsland enterprise mix

Average Top 20%*

Wool 24% 14%Lamb 12% 36%Beef 62% 45%Hay / cropping 2% 5%


In 2014/15 Gippsland experienced drier than normal conditions. Rainfall for the year averaged across Livestock Farm Monitor farms was 729mm, which was lower than the 2013/14 average of 853mm and also lower than the long term average of 814mm.

WHOLE FARM FINANCIAL CHARACTERISTICS

Gross income generated by livestock farms in Gippsland was higher in 2014/15 compared to the previous year, largely driven by higher cattle prices. Combined with unchanged variable costs, slightly higher overhead costs and a lower owner operator allowance, EBIT of $168/ha was nearly double the previous year. Return on assets increased from 1.2% in 2013/14 to 2.0% in 2014/15 and return on equity also improved from -0.1% to 1.5%.The top 20% were characterised by generating considerably more income per hectare, but also incurring higher variable costs. Overall they achieved an EBIT of $557/ha, over three times the average, and also recorded strong return on assets and return on equity of 5.4% and 5.2% respectively.

Table 5. Gippsland whole farm financial summary

Average Top 20%*

Gross income ($/ha) 776 1303Variable costs ($/ha) 259 366Overhead costs ($/ha) 204 194Owner operator allowance

($/ha) 145 185

EBIT ($/ha) 168 557Net farm income ($/ha) 87 358Return on assets (%) 2.0 5.4Return on equity (%) 1.5 5.2Equity (%) 81 57



Figure 12. Earnings before interest and tax

Figure 13. Net farm income

Figure 14. Return on assets

Figure 15. Return on equity

Figure 16. EBIT history

Figure 17. RoA and RoE history


WOOL

The average wool enterprise in Gippsland in 2014/15 did not perform as well as the previous year. Wool production and wool price were similar, but lambing percentages were down. Variable costs were higher, driven by higher animal health and contract services. EBIT decreased from $11.20/ha/100mm in 2013/14 to $7.10/ha/100mm in 2014/15 (Figure 18). The top 20% were characterised by higher wool production and a lower micron clip achieving a higher price compared to the average. They had lower variable costs per dse, mainly driven by lower supplementary feed and agistment costs, and achieved an EBIT of $16.72/ha/100mm.

Table 6. Gippsland wool enterprise summary

Average Top 20%*

Stocking rate (DSE/ha) 13.4 15.6Stocking rate

(DSE/ha/100mm) 2.18 2.69

Average micron 18.2 17.5Average yield (%) 72 72Lamb marking (%) 77 72Wool price received ($/kg

clean) 10.71 11.16

Clean wool cut (kg/ha/100mm) 6.3 7.3Gross margin ($/ha/100mm) 39.98 55.69EBIT ($/kg clean) ** 1.62 2.45EBIT ($/ha/100mm) ** 7.10 16.72

* Top 20% ranked according to gross margin per ha per 100mm of rainfall** Top 20% ranked according to wool EBIT per hectare

Figure 18. Wool enterprise EBIT

LAMB

Lamb profitability increased across Gippsland participants in 2014/15 mainly as a result of producing heavier lambs and more of them. Prices also increased, along with lambing percentages. Despite a rise in variable costs, EBIT increased from $13.39/ha/100mm in 2013/14 to $49.08/ha/100mm in 2014/15 (Figure 19).The top 20% were characterised by a higher lamb price, but had lower stocking rate and produced less lambs. However, their variable costs were lower and subsequently they achieved an EBIT of $107.17/ha/100mm.

Table 7. Gippsland lamb enterprise summary

Average Top 20%*


(DSE/ha/100mm) 2.58 2.69

Lamb marking (%) 106 82Average lamb weight (kg cwt) 20.2 20.3Average lamb price ($/kg cwt) 5.18 5.93Lamb produced (kg cwt /ha/100mm) 22.0 13.7

Gross margin ($/ha/100mm) 90 129EBIT ($/kg cwt) ** 2.77 6.84EBIT ($/ha/100mm) ** 49.08 107.17

* Top 20% ranked according to gross margin per 100mm of rainfall ** Top 20% ranked according to lamb EBIT per hectare

Figure 19. Lamb enterprise EBIT


BEEF

Higher beef prices were the highlight for the 2014/15 year with the average price rising from $1.62/kg lwt in 2013/14 to $1.85/kg lwt in 2014/15. In addition, more beef was produced and heavier animals were sold, resulting in profitability improving considerably. Overall EBIT increased from $0.01/ha/100mm in 2013/14 to $16.91/ha/100mm in 2014/15 (Figure 20). The top 20% of beef enterprises in Gippsland were characterised by a higher stocking rate, higher production per hectare per 100mm rainfall, but lower sale weight and lower variable costs. The top 20% achieved an EBIT of $30.16/ha/100mm.

Table 8. Gippsland beef enterprise summary

Average Top 20%*


(DSE/ha/100mm) 2.16 3.08

Calving (%) 89 86Average beef weight (kg lwt) 472 379Average beef price ($/kg lwt) 1.85 1.95Beef produced (kg 51 70

Average Top 20%*

lwt/ha/100mm)Gross margin ($/ha/100mm) 55.35 99.14EBIT ($/kg lwt) ** 0.18 0.49EBIT ($/ha/100mm) ** 16.91 30.16

* Top 20% ranked according to gross margin per 100mm of rainfall** Top 20% ranked according to beef EBIT per hectare

Figure 20. Beef enterprise EBIT


Northern Victoria

One of the best autumn breaks on record in 2014 allowed livestock farmers to enter winter with a green wedge of feed. The winter was quite wet, however most areas suffered a failed spring. This led to increased feed and agistment costs and less hay and silage harvest. There was some summer rain, however there are few livestock systems in Northern Victoria able to take advantage of this. The summer was mild with few days of extreme temperature.FAST FACTS

Table 9. Northern Victoria whole farm physical summary

Average Top 20%*

Sheep (head) 4,601 7,107Cattle (head) 390 1,070Labour efficiency (ha/person) 577 645Labour efficiency

(DSE/person) 5,862 8,530

Effective hectares 1,097 1,628


In 2014/15 wool remained the dominant enterprise for the average livestock farm in Northern Victoria, while beef was the main enterprise for the top 20%.

Table 10. Northern Victoria enterprise mix

Average Top 20%*



The 2014/15 period was much drier than average. Rainfall for the year across Livestock Farm Monitor farms averaged 469mm, which is 190mm less than the long-term average. 2014/15 was much drier than the previous year, which was slightly wetter than the long term average.


Gross income generated by the average livestock farm in Northern Victoria was higher in 2014/15 compared to the previous year, mostly driven by increased beef prices. Production across all enterprises was similar to the previous year, however there was more beef sold in 2014/15 compared to the previous year. Variable costs were higher, due mainly to higher supplementary feed and agistment costs, a factor of the drier year. Consequently, average EBIT reduced from $102/ha in 2013/14 to $86/ha in 2014/15. Return on assets decrease slightly from 2.0% to 1.9%, while return on equity increased slightly from 0.9% to 1.0%.The top 20% of farms achieved considerably higher EBIT, driven by higher income per hectare, lower variable costs and lower overhead costs than the average.

Table 11. Northern Victoria whole farm financial summary

Average Top 20%*


($/ha) 74 56

EBIT ($/ha) 86 326Net farm income ($/ha) 25 283Return on assets (%) 1.9% 5.6%Return on equity (%) 1.0% 7.0%Equity (%) 68% 81%



WOOL

The average wool enterprise in Northern Victoria produced more wool than the previous year, and received a higher price for their wool. Variable costs were higher, driven by higher animal health and supplementary feed and agistment costs. Despite this, EBIT increased from $10.40/ha/100mm in 2013/14 to $15.56/ha/100mm in 2014/15 (Figure 27).The top 20% were characterised by a higher stocking rate, lower micron, higher wool price, and produced more wool per head. Subsequently they returned a much higher EBIT of $31.32/ha/100mm than the average ($15.56/ha/100mm), but similar to the $31.97/ha/100mm achieved by the top 20% producers in 2013/14

Table 12. Northern Victoria wool enterprise summary

Average Top 20%*


(DSE/ha/100mm) 1.69 2.19


clean) 11.42 12.29

Clean wool cut (kg/ha/100mm) 5.9 7.9

Gross margin ($/ha/100mm) 43.43 72.40EBIT ($/kg clean) ** 3.49 7.35EBIT ($/ha/100mm) ** 15.56 31.32



LAMB

Lamb prices received in Northern Victoria increased slightly from $4.47/kg cwt in 2013/14 to $4.85/kg cwt in 2014/15. Lamb production also increased from 15.3kg cwt/ha/100mm in 2013/14 to 19.6kg cwt/ha/100mm in 2014/15, however due to the dry year this came at a cost. Variable costs were higher this year, with supplementary feed and agistment, in particular, rising from $3.52/dse in 2013/14 to $6.39/dse in 2014/15. This resulted in a much lower EBIT of $9.74/ha/100mm in 2014/15 down from $14.66/ha/100mm in 2013/14 (Figure 28). The top 20% of prime lamb enterprises were characterised by higher stocking rates, producing more lamb, and receiving higher prices, but recorded lower lambing percentages. Their variable costs, in particular supplementary feed and agistment rose from the previous year and were only slightly lower than the average. For these prime lamb producers EBIT decreased slightly from $59.93/ha/100mm in 2013/14 to $51.16/ha/100mm in 2014/15, but they performed much better than the average of $9.74/ha/100mm.

Table 13. Northern Victoria lamb enterprise summary

Average Top 20%*


(DSE/ha/100mm) 1.55 1.97


Gross margin ($/ha/100mm) 42.95 73.06EBIT ($/kg cwt) ** 0.76 4.17EBIT ($/ha/100mm) ** 9.74 51.16




BEEF

Beef prices for producers in Northern Victoria rose dramatically from $1.63/kg lwt in 2013/14 to $2.06/kg lwt in 2014/15. Calving percentages and stocking rates dropped, however beef production rose from 33kg lwt/ha/100mm in 2013/14 to 46kg lwt/ha/100mm in 2014/15. Producers took advantage of higher prices by selling more stock, indicated by the volumes of beef sold increasing markedly from 289kg lwt/ha/100mm to 372kg lwt/ha/100mm. While this opportunity was attractive, the cost to restock appears very expensive. The drier year led to variable costs, in particular supplementary feed and agistment, being higher. However, EBIT increased from $14.18/ha/100mm in 2013/14 to $17.05/ha/100mm in 2014/15 driven mainly by the improved prices (Figure 29). The top 20% of beef enterprises were characterised by a slightly higher stocking rate, greater production per hectare per 100mm of rainfall and higher price per kg/lwt received. These factors, combined with lower variable and overhead costs, contributed to the top 20% generating a stronger EBIT of $47.36/ha/100mm compared to the average of $17.05/ha/100mm. However, due mainly to the drier year this was lower than the 75.30/ha/100mm achieved by top 20% producers in 2013/14.

Table 14. Northern Victoria beef enterprise summary

Average Top 20%*


(DSE/ha/100mm) 1.66 1.63

Calving (%) 90 87Average beef Weight (kg lwt) 458 433Average beef price ($/kg lwt) 2.06 2.23Beef produced (kg

lwt/ha/100mm) 46 53

Gross margin ($/ha/100mm) 37.78 68.61EBIT ($/kg clean) ** 0.27 0.80EBIT ($/ha/100mm) ** 17.05 47.36

* Top 20% ranked according to gross margin per ha per 100mm of rainfall** Top 20% ranked according to beef EBIT per hectare



South West

Good commodity prices should have led to an excellent year in the south west, but it was tempered by dry seasonal conditions, in particular a very dry spring. The wet winter in 2014 meant that many producers had good moisture and pasture levels leading into spring, which helped many through this period. Summer rain provided mixed value, but those with summer crops or lucerne benefited. Wool and lamb prices were mainly steady, and beef prices increased in the second half of the year. Many beef producers, however, had sold off animals early due to the dry spring and were not able to take advantage of the increase in price. Beef producers also sold higher numbers of animals and are facing high costs to restock.

FAST FACTS

Table 15. South West whole farm physical summary

Average Top 20%*

Sheep (head) 5,848 5,288Cattle (head) 326 689Labour efficiency (ha/person) 550 706Labour efficiency

(DSE/person) 8,310 14,207

Hectares 1,201 890


In 2014/15 lamb was the more dominant enterprise for both the average and top 20% of livestock farms in the South West. This year beef enterprises were represented more in both average and top 20% of producers.

Table 16. South West enterprise mix

Average Top 20%*



The 2014/15 season saw well below average rainfall for much of the South West. Rainfall for the year averaged across Livestock Farm Monitor farms was 487mm, down considerably from 732mm in 2013/14, as well as being down on the long term average of 643mm.


Average EBIT for 2014/15 was $153/ha, up slightly from $142/ha on the previous year. This was driven by stronger prices for lamb and particularly beef cattle. The overall result was tempered by the drier seasonal conditions that led to an increase in variable costs, in particular supplementary feed and agistment costs. Average return on assets and return on equity increased marginally to 2.3% and 1.8% respectively. The top 20% of farms were characterised by generating more income and despite incurring higher variable costs achieved a considerably higher EBIT when compared to the average.

Table 17. South West whole farm financial summary

Average Top 20%*


($/ha) 69 64

EBIT($/ha) 153 353Net farm income ($/ha) 65 213Return on assets (%) 2.3 4.5Return on equity (%) 1.8 3.4Equity (%) 75 70



WOOL

Wool producers received greater income this year due to lambing percentages increasing from 67% in 2013/14 to 81% in 2014/15 and the amount of wool cut increasing considerably from 4.4kg/ha/100mm to 6.3kg/ha/100mm. Wool prices remained similar to last year. Despite higher variable costs this year, driven partly by supplementary feed and agistment costs, producers achieved an EBIT -$2.23/ha/100mm up from -$7.75/ha/100mm the previous year. Farms in the top 20% produced more wool as a result of higher stocking rates, however they achieved a lower price for their wool and incurred higher variable costs. Despite this they were able to return a positive EBIT of $20.04/ha/100mm (Figure 36).

Table 18. South West wool enterprise summary

Average Top 20%*


(DSE/ha/100mm) 2.10 2.00


clean) 11.26 10.20

Clean wool cut (kg/ha/100mm) 6.3 5.8

Gross margin ($/ha/100mm) 28.37 44.13EBIT ($/kg clean) ** -0.70 4.12EBIT ($/ha/100mm) ** -2.23 20.04



LAMB

Lamb enterprise stocking rates increased in 2014/15 and farmers produced 24.5kg cwt/ha/100mm up from 13.9kg cwt/ha/100mm in 2013/14. Lamb prices and average sale weights remained similar. Variable costs increased from $17.09/dse in 2013/14 to $22.83/dse in 2014/15. This was mainly driven by the dry year leading to higher supplementary feed and agistment costs. This was the main contributing factor to a drop in EBIT from $32.64/ha/100mm in 2013/14 to $23.47/ha/100mm in 2014/15 (Figure 37).The top 20% of farms had a higher average stocking rate, produced heavier lambs and received higher price per kg for them. They also produced more lamb per ha/100mm and despite incurring higher variable costs returned an EBIT of $61.32/ha/100mm.

Table 19. South West lamb enterprise summary

Average Top 20%*


(DSE/ha/100mm) 2.3 2.8






BEEF

Average beef prices continued to increase this year rising from $1.79/kg lwt in 2013/14 to $1.85/kg lwt in 2014/15 and combined with selling heavier animals, and producing more kg/ha farmers increased their income. Producers took advantage of higher prices and sold more beef than the previous year. Therefore, despite higher variable costs, EBIT increased considerably from $9.31/ha/100mm in 2013/14 to $24.66/ha/100mm in 2014/15 (Figure 38).The top 20% of farms produced heavier animals and more of them per hectare. Despite slightly lower prices achieved and higher variable costs they returned an EBIT of $60.30/ha/100mm.

Table 20. South West beef enterprise summary

Average Top 20%*


(DSE/ha/100mm) 2.3 2.3

Calving (%) 87 97Average weight sold (kg lwt) 432 462Average beef price ($/kg lwt) 1.85 1.76Beef produced (kg

lwt/ha/100mm) 74 107

Average Top 20%*


* Top 20% ranked according to gross margin per ha per 100mm of rainfall** Top 20% ranked according to beef EBIT per hectare



GLOSSARY BREAKEVEN PRICEVariable and overhead costs minus income only sourced from the main enterprise output. Allows for direct comparison with price received for main output.

COST STRUCTUREVariable costs plus overhead costs as a percentage of gross income.

DEBT RATIOInterest and lease costs as a percentage of gross farm income.

EARNINGS BEFORE INTEREST AND TAX (EBIT)Previously reported as operating profit.EBIT is calculated by subtracting variable costs, overhead costs and owner/operator allowance from gross farm income. EBIT is the return from all the capital used in the business.

EFFECTIVE HECTARESAll figures expressed per hectare are per effective hectare unless otherwise stated.Total hectares minus the area of land which is of little or no value for livestock or crop production (e.g. house and shed area).

EQUITYTotal assets minus total liabilities.

GRAZED HECTARESEffective hectares minus two thirds of the cropped area-assumes that a third of the cropped area is grazed at some time during the year.

GROSS FARM INCOMEIncome from each enterprise – wool, lamb and beef, etc. and is calculated by multiplying price received per unit by the number of units. Non-cash income such as changes in inventory of livestock or stocks of other inputs/output such as feed produced and conserved are also included.

GROSS MARGINGross income minus variable costs for a specific enterprise.

NET FARM INCOMEEBIT minus interest and lease charges. The amount of profit available for capital investment, loan principal repayments and tax.

OWNER/OPERATOR ALLOWANCEAllowance for the owner/operator’s own labour. Set at $62,541 per year (pro rata for actual time worked) for 2013/14. In addition an allowance of $41,694 per year (pro rata for actual time worked) is provided for other unpaid family labour.

OVERHEAD COSTSAll fixed costs that cannot be easily allocated to a specific enterprise (e.g. fuel, permanent labour, rates, administration, depreciation, etc.) but excluding interest, leases, capital expenditure, principal repayments and tax.

RETURN ON ASSETS (ROA)EBIT divided by the value of total assets. RoA gives an indication of how efficiently a business generates profit from its assets.

RETURN ON EQUITY (ROE)Net farm income divided by the equity value. RoE gives an indication of profitability by measuring the return on the farmers equity. If RoE is lower than RoA, the cost of the capital invested is greater than the profit generated on the additional assets.

VARIABLE COSTSVariable costs are costs that are specific to an enterprise, such as animal health and supplementary feed costs, and vary directly in relation to the size of the enterprise. Subtracting specific variable costs, i.e. wool variable costs, from specific enterprise income, i.e. wool income, gives a wool gross margin.


ABBREVIATIONS

ABS Australian Bureau of StatisticsAWEX Australian Wool ExchangeBoM Bureau of Meteorologycwt Carcass weightDEDJTR Department of Economic Development,

Jobs,Transport and Resources.DSE Dry Sheep EquivalentEBIT Earnings before Interest and Taxha Hectarekg Kilogramlwt Live weightM MillionMLA Meat and Livestock Australiamm Millimetres. 1 mm is equivalent to 4 points

or 1/25th of an inch of rainfall.RoA Return on assetsRoE Return on equityt Tonne = 1,000 kg

STANDARD VALUES

Standard values are used to calculate changes in value of stock on hand. The main standard values used in 2013/14 are shown below.

WOOL SHEEP ($/HEAD)Ewes $91Weaners $75Wethers $93Rams $100

PRIME LAMBS ($/HEAD) Ewes $151Lambs $122Weaners $108Rams $278

CATTLE ($/HEAD)Cows $980Heifers $830Weaners $520Steers 1-2 years $850Steers 2 + years $1,190Bulls $1,950

CROPS ($/TONNE WET)Pasture hay $177Silage $51Wheat $282Oats $270Barley $255Canola $480


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