Farm Tender

Mecardo Analysis - Sheep feeding payoff depends on timely rain as usual

By Angus Brown | Source: MLA.

Last week we took a look at Meat and Livestock Australia’s (MLA) sheep flock and slaughter forecasts, both of which are very bullish for sheep prices. With much of the country lacking paddock feed at the moment, sheep are being sold. Here we look at the costs of holding and potential payoff.

It’s all very well to say sheep are too cheap at the moment, and prices are due to rise. But there are obviously costs in carrying sheep through the autumn in the hope of a timely break and grass growth before winter sets in.

With grain sitting at around $400/t and pasture hay just as expensive on an energy basis, feeding is a lot more expensive than in previous years. However, wool is priced very well, as are lambs, so there is some payoff.

Table 1 shows the estimated cost of feeding the full energy requirement to a dry Merino ewe for 90 days at $390/t. Hay, straw or dry pasture could be used to cheapen the ration, but assuming it costs the full $390/t, the total for 90 days feed will be $26 per head.

2019-02-19 Sheep 1

There are a few ways of looking at this cost. It is 20-25% of the value of the ewe at the moment. However, with all wool under 24 micron currently priced well over $21 clean per kilo, most Merino’s are cutting over $60 worth of wool. Some sheep, albeit heavier than 55kgs, would be cutting close to $100 worth of wool.

Feed rations get more expensive with pregnant and lactating ewes, and anyone feeding through the autumn would be banking on rain and having pasture to feed ewes in late pregnancy and for lambing.

For meat breeds of sheep, the equations are obviously a lot different. Meat breeds are generally heavier and eat more, they therefore cost more to maintain. Depending on the type of sheep, the wool values of meat breeds are lower than Merinos or insignificant. However, spending $35 feeding a crossbred sheep which produces 1.3 store lambs at $80 per head still offers a good payoff.

2019-02-19 Sheep 2

Key points
   * The cost of feeding sheep through autumn is higher this year but wool and lambs values are also strong.
   * Timely autumn rains will see feeding sheep payoff nicely though rising sheep values.
   * If it doesn’t rain, mutton price increases are unlikely to compensate for feed cost.

What does this mean?
There will be some very good value in feeding Merinos and breeding ewes in the event an autumn break arrives in a timely fashion. There will be a rise in mutton prices and the premium for breeding sheep will also widen. This will offer a handsome payoff.

However, there is also risk. The red line on Figure 2 shows the breakeven price of a 22kg cwt sheep if feeding maintenance increases from now. If it doesn’t rain, price gains for mutton aren’t going to compensate for feeding costs.