Mecardo Analysis - It’s a close call on wool and lambs
- By: "Farm Tender" News
- Ag Tech News
- Feb 28, 2019
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By Angus Brown | Source: LFMP.
It has been a long time coming, and it’s taken record prices, but the profitability of wool enterprises has once again moved ahead of prime lambs businesses. However, it is only when rainfall is taken into account, and it’s a close call so don’t expect prime lamb producers to flip back to Merinos just yet.
The Agriculture Victoria Livestock Farm Monitor Project (LFMP) released earlier this month showed a continued trend of improving profitability for sheep and lamb enterprises. While we have often seen wool gross margins better than lamb in Northern Victoria and Gippsland, in the last financial year wool margins overtook lamb in the crossbred stronghold of Western Victoria.
Figure 1 shows wool and lamb gross margins were strong across the board on a dollars per hectare per 100mm of rainfall basis. In all regions wool margins outstripped lamb for both average and top 20% calculations. The wool figures for Gippsland were skewed higher by one producer who achieved a gross margin of $375/ha/100mm.
We can see in figure 2 that in the 46 years of the LFMP real gross margins for lamb have been better only 3 times, and wool twice, in the early 1970s. In 2010-11 lamb gross margins were slightly better.
On the pure gross margin scale lamb outstripped wool. The wool enterprises in Western Victoria had less rain, and therefore were more profitable when rainfall amounts are taken into account. Wool gross margins have tripled in two years, which can be largely put down to rising wool and sheepmeat prices.
In Northern Victoria wool and prime lamb enterprise gross margins have tracked closely together. There are 10 and 13 years of lamb and wool data respectively, and neither wool or lamb gross margins have been stronger over the period.
In Gippsland wool gross margins were the highest they’ve been since 2004-05. It’s interesting to see that despite record lamb prices, Gippsland gross margins have been stronger in the past. Good seasons have a strong positive impact on gross margins, even more so than price.
What does this mean?
With two years of increasing wool and lamb gross margins things are good for sheep producers. Prices for the year to date should see strong margins again, however, they are likely to be limited by increased costs of feed.
While weakening wool supply has a lot to do with the season, we can see that even with better rainfall there is still not a great financial incentive to increase the merino flock. While prime lamb gross margins are keeping pace with wool, it will only be wool producers who are increasing Merino numbers.
Key points
* Wool margins have overtaken lamb in Western Victoria, but only just
* Wool and lamb gross margins both strong
* Rainfall and quality of season a big factor in profitability
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