Have recent market movements shifted the dial on long-term enterprise comparisons?

March 1, 2018 4:30 pm

When markets associated with livestock and mixed grazing enterprises make significant upward movements it is common for producers to consider their enterprise make-up. 

Recent improvements in the wool and sheepmeat markets have continued to demonstrate the strong performance of associated enterprises.

Below is a brief overview based on southern Australian environments.

  • Self-replacing 55kg, 18 micron based merino ewe flocks with above 90% lambing rates continue to be the leading enterprise on a profit/Hectare basis.
  • Self-replacing 60kg, 20 micron based merino ewe flock joined to a terminal sire has a similar financial outcome coming in slightly behind the 18 micron enterprise above.
  • First cross and composite enterprises are greatly influenced by the replacement costs of the ewe and therefore struggle to compete at the margins although are attractive to mixed operations due to simplicity.
  • Wether trading enterprises are behind the above at the profit/hectare level over the long term as they struggle to capitalise when market conditions for breeding females are favourable. They are less volatile and offer liquidity, which can complement other majority enterprises. They offer lower maintenance and labour requirements.
  • Self-replacing beef herds have experienced recent improvements in profitability, these market improvements still find this enterprise over the longer-term delivering volatile returns. This volatility and spread in returns over the long term does not reflect the associated risk. These cattle enterprises at the profit/Ha level continue to lag behind the above sheep enterprises over the long term.

We are constantly consulted on enterprise comparisons and the projected outcomes for a specific business if an enterprise pivot was embarked on. Long-term comparison data is a good start as we all understand that enterprise changes are long-term decisions and that a broad range of considerations need to be analysed.

Key considerations include:

  • What are your land classes and carrying capacities per land class?
  • How could the topography, pasture compositions and water availability impact the decisions for my assets?
  • How is my land under management equipped? Does it suit specific enterprises?
  • Where does our expertise as a business lie and do I have the human capital?
  • Do we have market access and bio-security measures?
  • What enterprises fit with our longer-term business objectives and overall strategy?
  • What are we really passionate about as a business?

Comparing enterprises needs to take many considerations into account. A long-term view of decisions based on recent market performance can become very costly and have major impacts on a business. Current market movements have had an impact on all livestock enterprises as these markets have all seen positive movements. These improvements have not changed the ranking greatly across enterprises although what has happened is that the top performing enterprises continue to perform and pull ahead. As wool has gone from a commodity to more of a consumer-focused fibre, with increased brand differentiation and a consumer-centric approach, one can only feel the wool enterprise has a strong future and will be hard to catch.

Impact Ag work with clients to ensure outcomes to their enterprise mix meet the needs and objectives of the overall strategy.