Opportunities to maximise livestock profit in mixed farming enterprises
Author: John Webb Ware | Date: 12 Mar 2014
John Webb Ware,
Mackinnon Project, Faculty of Veterinary Science, University of Melbourne
Take home messages
- Enormous variations exist in livestock enterprise profitability.
- Enterprise profitability is in management control.
- Profit is usually driven by optimising wool and meat production and producing it at a low cost of production.
- Set up the management system so livestock demand fits the pasture growth curve to optimise pasture utilisation and ensure genetics, animal health, flock and herd structure maximise profitability.
- Profitable livestock and cropping enterprises can complement each other.
This paper outlines the opportunities to optimise sheep and beef cattle production from mixed livestock and cropping enterprises and maximise farm profitability. There is an enormous variation in the profitability of sheep (wool and sheep meat) and beef producers in south eastern Australia. Management is the key to increasing profitability. Regardless of the region, the features that drive profitability are similar. Generally, the most profitable farms generate more income per hectare that drives higher profits. The most profitable farms usually produce more wool, lamb and beef per hectare, but at a lower cost of production. They achieve this by adopting simple proven management systems, grow more grass and utilise it through higher stocking rates and profitable enterprises. The most profitable farms understand and monitor their business and match the relationship between pasture growth and stock demand. Integration of livestock enterprises into cropping enterprises offer a number of potential opportunities in terms of livestock productivity and profitability.
What's going on with farm performance? A summary of farm benchmarking
According to ABARE farm surveys the average return on capital has fluctuated between -0.5% and 3% since 1993. In the period between 2000 and 2007 return on assets (including capital appreciation) ranged between 7-10% due to a large increase in land values. Since 2008 land values have been static or have declined and total return on capital has ranged between 1-2%.
A more detailed examination of livestock farm performance is available from examining the results of the Victorian livestock farm monitor project that has been running since 1971. Farm income has been steadily rising since the early 1990’s as has been farm enterprise costs. In real terms, overhead costs have remained remarkably stable. Over the long term, net farm income closely follows gross farm income. In the 2012-2013 financial year, farm gross income decreased in response to lower commodity prices and poor seasonal conditions. This follows a period of excellent returns with good commodity prices and good seasonal conditions (2010-12).
The return on assets and return on equity in the group follow a very similar pattern. In recent times low return on assets has been partly explained by escalating land prices.
Figure 2 shows the average performance of farms in the Victorian Department of Primary Industries south west farm monitor group over the last 43 years.
Figure 3 shows the long term return on assets and return on equity for farms in the South West Farm Monitor Group.
Overall figures do not explain the important features of profitable farms. Closer analysis of farms shows some key features that drive profitability. The most obvious feature is that the most profitable farms (based on return on assets) tend to generate higher gross income due to higher stocking rate and enterprise profitability but have average costs. They invest more in pasture growth and less on supplementary feeding and overhead costs are lower too. Table 1 compares the overall performance of the average and top 20% of farms in south west Victoria. The same relationship exists in Gippsland and North East Victoria with different climatic conditions.
Table 1. Comparison of average and top 20% performance of livestock farms in south west Victoria farm monitor group 2012-13
Interest and Lease costs
Over the last 43 years that the south west farm monitor project has operated, a comparison of beef, wool and prime lamb enterprises has run on an annual basis. Over the long term, prime lamb flocks have been the most profitable, closely followed by wool, though in recent years beef has performed at a similar level to wool flocks. Figure 4 shows the comparative performance of prime lamb wool and beef enterprises on a gross margin $/dse basis.
The table below compares enterprise performance over the last 40 years, 10 years and 5 years on a gross margin $/dse basis. What the averages do not reveal is the enormous range in enterprise performance of all livestock enterprises, ranging from mediocre to highly profitable in all enterprises (wool lamb, beef). Producers can make money in all enterprises as long as they manage the enterprise well.
Table 2. Summary of livestock enterprise gross margin $/dse in south west Victoria for the last 43 years, 10 years, 5 years and one year
average 43 years
average 10 years
average 5 years
On closer examination of wool, prime lamb and beef enterprises, some consistent features highlight the performance of the top 20% of enterprises compared with the average livestock enterprise. The top 20% of enterprises usually run a higher stocking rate, both in terms of dse/ha and dse/ha/100 mm rainfall. They run higher stocking rates partly by better pasture utilisation (although utilisation has not been measured) and partly because they grow more grass and apply higher rates of fertiliser. They also tend to spend less on supplementary feed, partly through more efficient use of resources and partly by adopting production systems such as spring calving/winter spring lambing that rely on less supplementary feed and utilise pasture resources better.
As a consequence of running higher stocking rates the more profitable farms produce more wool and meat per hectare (or per ha/100mm rainfall). Wool and meat is produced at a much lower cost of production meaning that the more profitable farms generate higher profit margins regardless of commodity prices. There is usually no clear relationship between the average and top farms with regard to sale weight or sale price of surplus stock. The tables below compare some of the benchmarks for the average and top 20% of farms in north east Victoria. Similar patterns are evident in Gippsland and south west Victoria.
Table 3. Livestock enterprise benchmarks in north east Victoria. (2013)
Stocking rate dse/ha
Stocking rate dse/ha/100mm
Pasture costs $/ha
Pasture costs $/dse
Labour efficiency dse/labour unit
Return on assets
Table 4. Livestock profitability indicators (Beef)
Gross margin $/dse
Gross margin $/ha
Beef production kg/ha LW
Beef production kg/ha/100 mm
Sale weight kg LW
Sale price $/kg LW
Breakeven COP price $/kg LW
Profit $/kg (excl interest)
Table 5. Livestock profitability indicators (Lamb)
Gross margin $/dse
Gross margin $/ha
Lamb production kg/ha CW
Lamb production kg/ha/100 mm
Sale weight kg CW
Sale price $/kg CW
Breakeven COP price $/kg CW
Profit $/kg CW (excl interest)
Table 6. Livestock profitability indicators (Wool)
Gross margin $/dse
Gross margin $/ha
Wool production kg/ha clean
Wool production kg/ha/100 mm
Wool sale price $/kg clean
Sheep sale price $/hd
Breakeven COP price $/kg clean
Profit $/kg clean (excl interest)
Management systems that drive farm profit
There are a huge variety of reasons why the top 20% of farms are profitable. The basic farm resources do not guarantee that these farms will perform best; rather it is how those assets are managed. The best farm managers have three consistent features, firstly they understand the profit drivers of their livestock enterprise, secondly they monitor their business performance and they understand and fit the relationship between pasture supply and livestock demand.
The first step to improve farm profitability is to ensure the enterprise is run efficiently. Initially this includes setting up a farm plan with clear goals of what is the direction of the business. This should be constantly reviewed with opportunities for improvement critically analysed and adopted where returns are acceptable. The type of enterprise and management system should be the most profitable for available resources. The next step is to utilise pasture that is grown by setting the stocking rate to optimise production and maximise profit without placing the business at too much risk both financially and environmentally. The next step is to invest in growing more grass initially by fertiliser application and ensure that soil nutrients are not limiting and finally investing in new pasture species to grow more pasture and better quality pasture, if the marginal gain justifies the investment.
In term of prioritising investment on farm, the first step is to ensure the enterprise(s) run are the most profitable for available resources. This includes what type of enterprise should be run for a specific market whether it be breeding or trading and ensuring it is run efficiently. Given there is enormous variation in enterprise profitability an important first step is to optimise the proportion of the most profitable enterprises. Consideration should be given to both likely returns with a range of commodity prices, capital invested in the enterprise and physical resources and suitability of the enterprise on farm considering labour and infrastructure. In the long term, many sheep lamb, dual purpose and wool enterprises have outperformed beef though the best beef enterprises do hold their own with sheep enterprises. Traditionally, beef enterprises have had more capital tied up in stock though at present many sheep enterprises have similar capital invested in the enterprise.
In terms of the difference between breeding and trading enterprises there are numerous issues to consider. Apart from profitability, trading enterprises offer a better fit with the pasture growth curve if stock are purchased in autumn and sold in late spring with few carryover stock in summer. However, the volatility of trading enterprises is high and profits are dependent not only on growth rates, but also on the price per kg lw on both purchase and sale price. This is often beyond the manager’s control so relying on trading enterprises alone, whilst potentially profitable, comes with substantial volatility (risk).
Another important consideration is how complimentary enterprises are. For example, swapping sheep and cattle every six months offers substantial benefits in terms of worm control that are difficult to gain when they are run as sheep only or cattle only areas. Swapping sheep and cattle every six months is a potential “free kick” with gains in productivity of up to 10% in both enterprises possible; the challenge is often swapping cattle where sheep have previously grazed when pasture availability is limited. Running cattle in conjunction with sheep for worm control alone is not sensible and should be driven by the profitability of the enterprise.
The optimal enterprise mix will ultimately depend on enterprise profitability. Figures are often quoted of optimal cropping proportions of between 30-40%, but are more driven by management, land class, commodity prices and infrastructure. For many producers, the proportion of cropping has increased in recent years which on paper often looks appealing but often does not consider the additional risk, especially where cropping is expanding into marginal cropping areas, such as where water-logging is an issue. The comparative returns ($/ha basis) from cropping are often overestimated when compared with livestock, as cropping is usually undertaken on the best land class.Consequently, it is difficult for livestock to compete with cropping that consistently achieves high WUE. There are substantial benefits of mixed crop livestock enterprises from a livestock perspective. We observe that higher stocking rates are achieved in livestock enterprises that are run in conjunction with cropping. The main benefit to livestock is enabling higher stocking rates to be run (depending on crop proportion but often an additional 10%+ stocking rate in winter) as stocking rates on pasture areas are reduced in the most feed limiting times (summer/autumn when grazing stubbles and early winter when potentially grazing cereals). This ensures pastures respond well to autumn rains and have increased availability in winter as some stock may graze cropping areas. The amount of stock required for stubbles is highly variable and in some years contribute a significant proportion of crop income. The livestock enterprises should be flexible enough to adjust to feed availability and may require additional trading stock in years of high stubble feed or may simply help reduce liveweight loss and reduce supplementary feeding on poor quality stubbles, contributing to higher production and/or lower costs in the livestock enterprise.
Additional benefits for livestock with cropping enterprises can occur in drought years (utilising failed crops and reducing supplementary feeding) or occasionally utilising frost affected crops. However, a word of caution should be noted when utilising frost affected crops that have been cut for hay or silage. That is, the quality of the hay/silage is often only good enough for maintenance feeding rather than production feeding. Table 7 highlights the potential lamb production when grazing pasture/fodder of different qualities. A large proportion of hay/silage produced has less than 10 MJ/kg DM thus has little potential without additional concentrates to produce much liveweight.
Table 7. Lamb production with different quality fodder
Set the management calendar to fit the pasture growth curve
One of the most important decisions to make is setting the calving and lambing time. Ideally, the time should be set to enable a good fit between pasture growth and feed demand. In wool enterprises, later lambing is generally more profitable as later lambing enables higher stocking rates to be run and more wool produced with less supplementary feeding. We normally expect conservatively 0.5 dse extra per lambing ewe can be run when changing from autumn to late winter lambing. With prime lamb flocks, the optimal lambing time is a bit earlier; about 4-5 months before the end of the growing season (unless there are substantial good quality stubbles or summer finishing pastures) as a balance must be met between minimising winter grazing pressure (later lambing better), reproductive performance (later a bit better), minimising supplementation of ewes (later better) and the ability to finish lambs (earlier lambing easier but not in autumn).
Autumn calving better suits weaner production if your objective is to maximise calf weight. If your objective is to maximise beef production and profit late winter and spring calving systems often better suit. Given that cows lactate for a longer period than sheep, the fit between pasture growth and feed demand is often better with sheep than cattle although there are still substantial benefits of late winter spring calving than autumn calving. Spring calving enables higher stocking rates to be run with more beef production per hectare with less supplementary feeding. Spring calving herds tend to be less vulnerable to drought as it is still possible to get cows pregnant in late spring in most years compared with early winter joining in autumn calving herds. The livestock farm monitor project in Victoria demonstrates this point when comparing the performance of autumn and spring calving herds in south west, north east Victoria and Gippsland. Table 8 summarises the performance of spring and autumn calving herds in north east Victoria. On all attributes spring calving performance is superior.
Table 8. Performance of spring and autumn calving beef herds in north east Victoria
Autumn calving herds
Spring calving herds
Stocking rate dse/ha
Beef production kg/ha/100mm
Feed cost $/dse
Gross margin $/ha/100mm
Break even price $/kg lw
It is also interesting to note that including the south west, north east Victoria and Gippsland there is a trend to later calving herds generating a higher gross margin $/ha/100 mm rainfall.
Herd structure, reproductive management and timing of management
To successfully run high stocking rates, timing of management is critical. Length of joining should ideally extend for five weeks with sheep and six to seven weeks for cattle. This enables easier weaner management, better nutritional management of ewes and lambs and worm control in sheep. There is never any reason not to wean merino lambs after 13 weeks of age. Prime lambs can be carried on for longer in good seasons. However, in poor seasons or where lambs can be weaned onto high quality pasture, early weaning will not only benefit lambs but enable recovery of ewes whilst pasture quality is still reasonable in early summer to ensure high conception rate the following year. Reproductive management is important, particularly in lamb enterprises, where nutrition is the most important driver, but the key should always be to consider lambs produced per hectare. High lambing percentages don’t necessarily mean maximum profit if the high lambing percentages are driven by low stocking rate alone!
In cattle, fertility is also important. A tight joining enables a good recovery time after calving for cows to start cycling before next mating and the average age and weight of progeny is higher so they are more valuable. A tight calving period is also more labour efficient. In spring calving herds, calves should be weaned when cow condition score falls to 2.5. The actual time may range from January in drought years to March in good seasons. Feed resources are best allocated to young growing weaners and cows can be given the poorest quality feed. There is also a small saving in feed efficiency too, due to less wastage during lactation. Another important management strategy to adopt in efficient herds is the herd structure. Ideally cows should be sold by eight years of age. To achieve this, most heifers should be mated and a high proportion retained. This will result in selling more high value old cows and less low value heifers. If the herd has a spread out calving with significant dystocia problems, it may take several years to achieve this objective.
Animal health management is critical to optimise utilisation of available pasture. Poor health, especially worm control will result in poor use of pastures. If stocking rates increase, and worm control remains sub-optimal the impact on performance will be more severe. Often intensification can induce animal health problems. For example selenium deficiency can be more severe with improved pasture production which is a due to a combination of dilution of selenium with extra pasture production and potential interactions with fertiliser (sulphur); both limiting selenium availability.
To highlight opportunities with good animal health control a recent study undertaken by the Mackinnon Project, demonstrated that the difference in growth rates between good and poor worm control of weaned calves was over 30 kg/head over a six month period. In addition, weaned calves grazing highly improved pastures on several properties that were diagnosed deficient in selenium had a significant response to selenium supplementation (range 3.2-11.1 kg over six months). The benefit cost ratio of supplementation ranged between 3:1 to 9:1. Animal health costs are typically about 5-8% of total costs on typical livestock farms. Most important decisions relating to animal health are about management to increase production rather than reducing costs.
Other management issues
There are numerous other management issues that need to be implemented to ensure a profitable enterprise is run and to enable efficient use of pasture resources especially as stocking rates increase. Issues including nutritional management, genetic improvement and marketing are also important to consider.
Genetic improvement is another important element of management that drives profit of livestock enterprises. The first step with genetic improvement is to develop a breeding objective that sets targets and strategies that optimise improvement of the most economically important traits. Secondly the existing bloodline should be benchmarked to identify how it is performing against industry, whether by using wether trials (for example NSW DPI bloodline performance, Peter Westblade memorial merino challenge) or an on farm progeny trial that trials different bloodlines or financial benchmarking to identify differences in profitability. For example, a wool enterprise identified with their annual benchmarking that their current bloodline performance was below average. In response, they set up a progeny trial comparing three bloodlines that were performing well in local wether trials. Table 9 highlights the difference in fleece values of the four different bloodlines and extra income generated by the different bloodlines. The difference in profitability compared with the base bloodline was driven by extra income (higher clean fleece weight and lower FD) with no extra costs or effort required to run the improved bloodline.
Table 9. Progeny trial comparing fleece values of three new bloodlines with current bloodline
*14, 000 sheep
A similar range in genetic differences exist with prime lamb enterprises (growth, fertility, carcase & wool traits) and to a lesser extent beef cattle (growth, fertility and carcase traits)
Increasing stocking rate: prioritising investment
The first key step to run a profitable livestock enterprise is to design the management calendar to enable efficient use of pasture resources. Once this is achieved, the next step is to utilise available pasture. Investment in stock will give the best return on investment. The most profitable enterprises utilise about 50-60% of available pasture. The average pasture utilisation is estimated to be about 35% in southern Australia. This is well below the figures quoted in the dairy industry, but the dairy industry is producing a more valuable product that is heavily supplemented with feed from off farm. In addition, most dairy businesses are run in high rainfall regions so the range in the pasture growth curve is not so extreme.
Benchmarks for stocking rate have been determined for south eastern Australia. Rather than using just rainfall, taking into account the growing season, paddock size and soil phosphorous levels, as outlined by Saul et al 2002, provides a more comprehensive indication of potential stocking rate. The formula is:
Carrying capacity (DSE/ha) = a + b (growing season) + c (Olsen P)
Where: a = -8.30 for paddocks less than 20 ha in size or –11.05 for paddocks of more than 20 ha, b = growing season (expressed in months), c = Olsen P (in mg/kg)
At the same time as investing in stock to increase pasture utilisation, grazing management becomes more important. At low stocking rates the method of grazing is relatively unimportant. At higher stocking rates grazing management becomes critical, especially at the most feed limiting time. The grazing management system must still be a balance of optimising pasture growth, use of infrastructure and labour resources. Figure 6 summarises the change in stocking rate of three grazing management systems (set stocking, simple four paddock rotation and intensive rotation under high and low phosphorous rates. The highest stocking rates were achieved with intensive rotational grazing. In this system ground cover was consistently above critical thresholds compared with set stocking rate. The highest stocking rates were also achieved with higher phosphorous rates compared with typical district fertiliser application where soil phosphorous levels were still below ideal levels.
Once available pasture is utilised the next step is to invest in growing more grass. The first step is to rectify major nutrient deficiencies. Soil testing will determine what nutrients are deficient. The major nutrients are phosphorous, potassium and sulphur and micronutrients including molybdenum. In addition lime application is often necessary, although the return on investment is usually less than phosphorous due to higher cost and lower marginal increase in stocking rate. Tactical use of urea is often a cheaper option than supplements when feed is green, as is the use of products such as ProGibb®, a plant hormone that essentially produces a similar response to urea application in winter in cold conditions. The cost of fertiliser is substantial and is one of the largest single costs on farm. It is still critical to increasing productivity and profitability on most farms that are deficient in soil nutrients. Increasing soil fertility will not only increase pasture growth, but also extend the growing season and increase pasture quality and animal performance. The marginal return on investment from fertiliser application is dependent on the cost of fertiliser, profitability of the enterprise and the increase in stocking rate achieved.
Often producers perceive increasing stocking rate in conjunction with fertiliser application is a risky strategy. The opposite is often true. If increasing stocking rate when soil fertility is low, the system may crash unless it is monitored closely, especially in poor seasons. If soil fertility is higher, stocking rates may be run and the system is more likely to cope with poor seasonal conditions due to higher pasture growth over a longer period and be highly profitable in good seasons as is outlined in Figure 7. The boxplots of gross margin verses stocking rate at different levels of soil fertility were generated from running simulations from GrassGro over a 30 year period. Note that at low soil fertility, there is little scope to increase stocking rate before the system crashes. At higher soil fertility, the system can run higher stocking rates with less range in gross margin (les risk). Figure 7 shows the range in gross margin ($/ha) for four stocking rates at low medium and high soil fertility.
The final step in increasing pasture production on farm is to renovate pastures and introduce more productive pasture species. In southern regions we recommend either safe endopyhte (AR 37, endo 5) cultivars of perennial rye grass (in cooler high rainfall regions) or in lower rainfall regions winter active phalaris (CV Landmaster, Holdfast GT or Advanced AT). New cocksfoot varieties and fescues offer some alternatives too. Lucerne may be useful in extending the growing season and producing out of season high quality fodder and often fits in with cropping enterprises. New grazing tolerant varieties appear to be persisting well on many properties. Apart from productivity (increase dry matter and quality) the selected pasture species should be drought tolerant and safe for livestock. The cost of renovation ranges from less than $200/ha to over $400/ha so it is critical to first identify paddocks that will generate the largest increase in stocking rate at the lowest cost as the payback period will often be over five years. Generally stocking rates must increase by at least 3-5 dse/ha to justify the cost of renovation and risk involved. The return on investment will be greatest when the enterprise run is profitable.
Often a cropping phase prior to renovation can improve the success of renovation by controlling weeds, increasing soil fertility and improving cash flow with cropping prior to pasture renovation.
When increasing stocking rates, it is critical to plan for a drought. Many farmers are familiar with drought over the last 15 years and many are reluctant to increase stock numbers even though seasonal conditions have improved. However, the reality is that many producers do not have viable businesses with current long term commodity prices at low stocking rates. To minimise the risk of drought, planning is critical. Whilst droughts will almost always cost producers, the impact to some extent can be controlled and recovery hastened by careful planning. This usually includes a combination of feeding, building up on farm feed reserves and funds for feeding in drought and strategic sales during drought. There are many options but poor or no planning can be disastrous; both emotionally and financially.
There are many opportunities for producers to invest on farm to increase farm profitability. The first step is to plan and get the management system and enterprise right. The next step is to utilise existing pasture by increasing stocking rate. The next step is to increase soil fertility and finally invest in new pasture species to increase productivity and profitability.
Saul GR and Kearney GA. (2002) Potential carrying capacity of grazed paddocks in southern Australia Wool Tech Sheep Breed. 50 (3), 492-498.
DEPI Victorian Livestock Farm Monitor Project 2013 http://www.depi.vic.gov.au/agriculture-and-food/livestock/farm-monitor-project
Warn L. (2010) Sheep farming for meat and wool editors Court J, Hides S and Webb Ware JK CSIRO Publishing. ISBN: 9780643092945
John Webb Ware, Mackinnon Project
University of Melbourne
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