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Red Meat Market Report

Written by Karl Behrendt (Charles Sturt University)Commissioned by Meat & Livestock Australia

How are global and Australianbeef and sheepmeat producersperforming?

GLOBAL AGRI BENCHMARK NETWORK RESULTS 2015

MLA’s Market Information Service – January [email protected] 9463 9333

http://www.mla.com.au/News-and-events/Publications/Market-information-publications

2

MLA’s Market Information Service – Red Meat Market Report January 2015

Global agri benchmark network results 2015

HIGHLIGHTS

Beef cattle Global beef prices were generally on the rise into 2014, driven by rising demand and

constraints on supply (especially feed, land, water and environment).

Relative to recent global levels, Australian cattle prices had some significant catching-up to

do, following the impact of the prolonged drought and a high A$.

Few farms in the agri benchmark network could boast long-term profitability in beef

production in 2014, though higher beef prices improved results for most.

While cow-calf enterprises were generally profitable in 2014, cattle finishing was not,

although it had improved from 2013 levels.

Typical Australian beef farms were mostly profitable on a short-and medium-term basis in

2014, but not long-term - given Australia's relatively high opportunity costs of land, capital and

labour.

Australia has moderate to low calf weaning rates and cow herd productivity, compared with

similar systems.

Australia achieves moderate to high weight gains in southern farming systems, but low

gains in extensive northern systems.

Overall, Australia remains an efficient beef producer, with a moderate to low cost of

production.

China

3



Sheepmeat Sheepmeat prices remain comparatively high, due to rising global demand (especially in the

Middle East), the opening of China to imports and severe constraints on supply.

Almost all typical sheepmeat farms in the 16 countries covered were long-term profitable in

2014, assisted by income from other enterprises, especially cropping (particularly in Australia)

and cattle (particularly in Europe).

On a whole farm basis, Australian sheep farms are the most profitable (in absolute US$

terms), due to the larger size and diversification (crop incomes).

Even without counting the income from other sources, sheep flock incomes were mostly

long-term profitable in Australia, New Zealand, China and Uruguay (and on some typical farms

in Africa) in 2014.

Australian sheep farms have relatively low losses, mortalities and wastage.

Australian farms achieve moderate to high meat production efficiency.

Sheep reproductive efficiency is moderate by international standards, with probable room

for improvement if economic to do so.

Australia remains one of the most efficient and low cost producers of sheepmeat, with total

costs of production (in US$ terms) declining year-on-year since 2011.

Australia

4



1 See http://www.agribenchmark.org/home.html

INTRODUCTIONThis report presents the agri benchmark network's perspectives on recent global beef and

sheep developments, the economics and drivers facing producers around the world, farm

profitability (globally and in network countries) and views on likely future developments and

challenges.

It then asks the question how competitive are Australian beef and sheepmeat producers and

what are the main areas where our productivity differs from other countries?

The analysis and perspectives are as of mid-2015, though farm data is for the 2014 year.

WHAT IS AGRI BENCHMARK?1

agri benchmark is a global, non-profit and non-political network of agricultural economists,

advisors, producers and specialists in key sectors of agricultural value chains. The cattle and

sheep network has over 30 member countries, covering 90% of world beef production and

55% of sheepmeat production and has been producing the results of comparative analysis

over the last 13 years.

The core competence of the network is in analysing production systems, their economics,

drivers and perspectives.

agri benchmark aims to assist:

producers and their organisations to better align future production through analysis of

comparative performance and positioning;

non-profit organisations (governments, NGOs, international organisations) to monitor global

agricultural challenges; and

agri-businesses to operate successfully through in-depth understanding of markets and

customers.

agri benchmark has branches covering beef cattle and sheep, dairy, pigs, cash crops,

horticulture and organic farming. Within cattle and sheep, it covers breeding and finishing

enterprises (cattle cow-calf, cattle finishing, and ewes and lamb/sheep finishing). It is also

unique in being able to separately measure the performance of the breeding and finishing

operations even on joint breeding/finishing farms.

5



Legend

Participating countries 2014

Contacts for further growth

Source: agri benchmark

The farm-level results in this report are drawn from the collection of 'typical farm' data in each

country, and subsequent analysis and research efforts of all member countries culminating in

the 13th annual agri benchmark conference in Valledepur, Colombia, 10-18 June 2015.

Table 1 agri benchmark network participants

Figure 1 Countries in the agri benchmark network

Canada

Countries Farms

Cow-calf 25 60

Beef finishing 30 75

Sheep 15 35

6



Aualian and New Zealand agri benchmark typical cattle farms

Figure 2 Location of Australian typical cattle farms and beef cattle density

HOBART

AU-85/AU-200

ADELAIDE

SYDNEY

CANBERRA

BRISBANE

PERTH

DARWIN

MELBOURNE

Kilometres

250 500 750 1,0000

N

AU-540/AU-600

AU-65/AU-180

AU-380/AU-540

AU-900/AU-2350

AU-320/AU-880

AU-150/AU-350

>51

31 - 50

11 - 30

3 - 10

0 - 2

Legend - cattle per sq km

AU-360/AU-1550

Table 3 Australian and New Zealand agri benchmark typical cattle farms

AU65/180 (65 steers sold/180 cows on farm) – Northern tablelands NSW; Angus + sheep + wool; pasture feed base

AU85/200 – Southern tablelands NSW; British breed; pasture feed base

AU150/350 – Western districts Vic.; Angus; pasture, hay, oaten grain feed base

AU 360/1550 – Northern Territory, Bos indicus; live export; pasture, mineral supplements feed base

AU380/540 – South east Qld; Simmental X Droughtmaster; cattle + crops; pasture feed base

AU540/600 – Northern slopes NSW; Charolais X Angus; pasture, hay, sorghum feed base

AU320/880 – Central Qld; Bos indicus; pasture, mineral supplements feed base

AU900/2350 – Central Qld, Bos indicus; cattle + crops; pasture, oats grazing feed base

NZ375 (375 bulls finished & sold) – East coast North Island; pasture feed base

7



AU1250 (1250 ewes) – NSW slopes; Border Leicester X Merino, Dorset; sheep + crops

AU1600 – NSW Northern Tablelands; Merino, Dorset Merino; sheep + wool + cattle

AU2000 – NSW plains; Merino, Border Leicester; sheep + crops

AU2000WA – WA low rainfall; Merino, Merino and Poll Dorset; sheep + crops

AU3000 – Western Victoria; Coopworth X Dorset

AU4800 – WA medium rainfall; Merino, Merino and Poll Dorset; sheep + crops

AU7800 – WA high rainfall; Merino, Merino and Poll Dorset; sheep + crops

NZ3200 – East coast North Island NZ; Romney; sheep + cattle

Table 4 Australian and New Zealand agri benchmark typical sheep farms

HOBART

AU-1250sADELAIDE

SYDNEY

CANBERRA

BRISBANE

PERTH

DARWIN

MELBOURNE

Kilometres

250 500 750 1,0000

N

AU-2000s

AU-1600s/AU-1050s

AU-3000s

>301

201 - 300

101 - 200

21 - 100

0 - 20

Legend - sheep per sq km

AU-7800s

AU-4800s

AU-2000sWA

Figure 3 Location of Australian typical sheep farms and sheep density

8



Figure 4 FAO monthly meat price indices

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 150

100

200

300

400

500Index based on US$/tonne swt prices (Jan 2000 = 100)

Poultry Pigmeat Beef Sheepmeat

Source: FAO meat price indices

GLOBAL PRICE AND COST TRENDS

Meat pricesGlobal beef prices are still rising overall, though more gradually than in the 2009-2011 period

and with a slight decline into 2014-2015 for all meats. Beef prices have had the strongest

recovery of all meats during the latter part of 2015.

The beef scene continues to reflect a tightening demand/supply situation, attributed

essentially to the industrialisation and urbanisation (and associated rapid rise in middle

income households) in the mass population

countries of China, India and Indonesia; and

recent moves by China (and to a much lesser

extent, Indonesia) to address this by opening

to beef imports.

At the same time, beef production (indeed

meat production generally) is being

increasingly constrained by scarcity of land

(and shift of livestock from arable to more

marginal land), adverse weather events,

environmental policies, slowing productivity

gains and rising grain prices during 2006-

2013 (both as a meat production cost and

competitor for land).

In contrast to beef, prices for poultry and pork

were flat over 2011-2014 and recently

declined, whereas sheepmeat prices have

fallen from the high 2011 peak (due, at least in

part, to drought in Australia and NZ).

Beef prices (in US$ terms) rose in all major

countries in the 2006 to 2014 period, led by

China (4.4 times), Argentina (2.5 times), Brazil

(2.3 times), Uruguay (1.9 times), USA/Canada

(1.8 times with a strong rally over the past 2

years) and Indonesia (1.7 times), with the South American rise explained in part by currency

appreciation against the US$. Prices in the rest of the EU, Russia, and Colombia rose around

40%-50% over the same period.

Figure 5 FAO monthly cereal, meat and food price indices

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15*0

50

100

150

200

250

300Index based on US$/tonne swt prices (2002-2004 = 100)

Food Price Index

Meat Price Index

Cereals Price Index

* to NovemberSource: FAO food price indices

9



OECD-FAO (2014 Outlook database) currently predict livestock prices to rise further over the

coming decade, while crop prices fall initially then hold. Poultry meat production is also

predicted to grow fastest, followed by pork, beef and sheep. Comparatively, poultry and pork

production globally is around twice as high as global beef production, and 5-6 times higher

than global sheepmeat production.

Global sheep meat production is forecast to increase 5% by 2020. Increases are expected in

China (10%), India (11%), Australia (17%), Nigeria (32%), with a decrease in NZ (-1%) due to

competition from dairy and forestry. Sheep production for most countries is dominated by

domestic consumption except Australia and NZ, which trade 80-85% of the World's sheep

meat. EU sheep numbers are decreasing due to decoupling of payments and the impact on

profitability with the trend forecast to continue. Sheep meat consumption generally decreased

over the last decade in north and south America, the EU, Australia and New Zealand, but

increased substantially throughout the middle east/Eurasia, Africa, India and China.

GLOBAL PERFORMANCE OF BEEF FARMS

Few farms in the network could boast long-term profitability on cattle enterprises in 2014, even

though beef prices had risen. Even when net income from other sources or enterprises on the

same farm (such as from crops, sheep, wool etc) are counted to yield a whole farm profit, only

beef farms in Uruguay, Argentina, China, Kazakhstan, Ukraine and Indonesia made a profit2,

without government payments, in 2014. This represents an improvement from 2012 and 2013.

European beef farms tended to make medium and long-term losses, which become

significantly more severe with the exclusion of government payments. Results were mixed in

Australia, Brazil, Argentina, and Colombia.

While cow-calf enterprises in the agri benchmark network have generally been profitable in

most countries, beef cattle finishing has not been a profitable business over recent years due

to the high cost of weaners and feed.

2 Beef farm enterprise income refers to income attributed to the beef cattle component of a farm. Similarly, beef cow-calf enterpriseincome and beef finishing enterprise income refer to income specifically attributed to the beef cow-calf and beef finishingcomponents of the farm (calculated separately, even when combined on the same farm, such as occurs in the typical Australianpasture farms). Whole farm profit refers to the combined income from all enterprises undertaken on the farm, including forexample, cropping or sheep, net of the costs of operation.

10



Profit as a % of gross income

Farm identification numbers indicate number of breeding cows/cattle sold

Figure 6 Whole farm net profit margins combined cow/calf and finishing cattle enterprises3


-100%

-75%

-50%

-25%

0%

25%

50%

75%

100%

AT

-30

/25

F

DE

-14

00

/80

0

FR

-80

B/6

0F

R-8

0/7

0

FR

-85

/20

0

UK

-70

/45

UK

-10

0/8

0

SE

-95

/10

0

UA

-29

5/5

60

0

AR

-85

0/3

80

AR

-11

00

A/8

00

UY

-22

0/9

0

BR

-12

00

/40

0

CO

-40

0/1

30

CN

-14

0/7

0

ID-4

/2

KZ

-50

0/8

00

AU

-18

0/6

5

AU

-20

0/8

5

AU

-35

0/1

50

AU

-54

0/3

80

AU

-60

0/5

40

AU

-88

0/3

20

AU

-15

50

/36

0

Short-term (Cash) Medium-term (Cash - Depreciation)Long-term (Cash - Deprec. - Opp. Costs) Long-term (excluding gov. payments)

3 Net profit margin on a whole farm basis is profit as a percentage of gross income from all income sources (including crops, wool,lamb etc). Short-term profit is where income (from sales and coupled government payments) covers all cash costs (includinginterest and family wages), medium-term profit allows additionally for depreciation, and long-term profit allows for the opportunitycosts of land and other capital invested. Opportunity costs on capital such as land, is calculated using a market leasing rate ineach country.

Pasture-based beef farm profitabilityIn 2014, with much of the north Australian cattle herd affected by drought (depressing cattle

prices for all producers), the 'typical' Australian beef cattle pasture-based farms monitored by

agri benchmark (all of which have both cow-calf and finishing operations) were mostly

profitable in the short-term, with around half profitable or breakeven in the medium term, but

all unprofitable in the long term.

There was, however, a large variation in the performance of the Australian 'typical' beef

grazing farms, with the main determinants appearing to be farm size, location (drought

severity) and cost efficiency. All the Australian agri benchmark farming systems being

monitored experienced long-term losses. Although, long-term profitability improves as farm

turnoff increases and costs are kept relatively

low, with the largest Queensland farm (turning

off 900 cattle) returning a good medium-term

profit in 2014, despite the ongoing drought.

In 2014 all of the Australian systems achieved

a short term profit margin, and three achieved

a medium term profit (Western Districts of VIC,

and two in Central QLD). Another three

systems (Southern Tablelands of NSW, SE Qld,

Northern Slopes of NSW) were close to break-

even in the medium term, with the Northern

Territory system generating the lowest medium

and long-term returns.

Germany

11



Feedlot profitabilityIn 2014, cattle feedlots generally performed

better than in 2012 and 2013 around the world,

due to some fall in feed costs and higher beef

prices. However, profit results were still mixed.

The Canadian feedlot analysed was found to

be operating at a loss in the short and long-

term (despite experiencing significant

increases in beef prices), as were those

analysed in South Africa, Spain and Mexico.

The results for South American feedlots were

mixed with the majority achieving medium-term

profitability (excluding two in Argentina). Feedlot systems that were analysed in the US,

China, Peru, Namibia and Botswanna were found to be achieving long-term profitability

in 2014.

Beef production costsBeef production costs (in US$ terms) have increased appreciably in almost all countries (with

South Africa and the Ukraine notable exceptions) over the past eight years, led by China

(37.5% p.a. since 2006), Brazil (31% p.a.), Argentina (23% p.a.) and Ireland (18% p.a.).

Countries with much slower cost increases (<10% p.a.) include Australia, the main EU

producers and South Africa. Some of this disparity is attributed to currency changes and

differing feeder/store cattle price rises (one of the largest costs in cattle finishing). In Australia

the volatility in costs of finishing can also be partly attributed to variable cost of feed under

drought conditions.

Figure 8 Cost developments in beef production 2006-2014

0

100

200

300

400

500

US$ per 100kg lwt sold

Czech R.


Increase 2008-2014: < 10% Increase 2008-2014: > 10%

600

700

800

900

1000

AustriaSpain

South AfricaUKUkraine

SwedenAustraliaFrance

ItalyGermany

2006 2008 2010 2012 20140

100

200

300

400

500

US$ per 100kg lwt sold

Poland

600

700

800

900

1000

IrelandUSA

CanadaArgentinaBrazil

ChinaUruguay

2006 2008 2010 2012 2014

Figure 7 Short, medium and long-term net profit margins for beef feedlots

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Sp

ain

-430

Sp

ain

-520

Sp

ain

-5500

Sp

ain

-520/1

50

Canad

a-2

8K

US

-7200

US

-75K

Mexic

o-1

500

Arg

-26K

Arg

-630/8

00

Bra

zil-

680

Peru

-1700

Chin

a-9

40

Chin

a-2

000

Aust

-15K

S A

fric

a-3

000

S A

fric

a-7

5K

Nam

ibia

-25K

Profit as % of gross income

Short-term (Cash) Medium-term (Cash - Depreciation)

Long-term (Cash - Deprec. - Opp. Costs)

Long-term (excluding gov. payments)

Farm identication is number of finished cattle Source: agri benchmark

12



HOW EFFICIENT ARE AUSTRALIAN BEEFPRODUCERS?

Cow-calf enterprises

Stocking rates of cow-calf enterprises

Northern Australian cow-calf systems have relatively low stocking rates, on par with similar

rangelands of Montana and Kansas (US), Alberta (Canada), and semi-Kalahari bosveld (South

Africa). However, southern Australia's higher rainfall systems maintain high stocking rates,

similar to the European and South American systems.

Weaning rates (calves per 100 cows)

The majority of the world's cow-calf systems tend to maintain similar reproductive rates at

around or above 90 calves per 100 cows. However, north Australian systems maintain

reproductive rates similar to comparable extensive tropical cattle systems in South America

(Brazil), South Africa and Indonesia, which range from 50 to 80 calves per 100 cows. Southern

Australian systems tend to perform comparably to European and North American systems.

Depending on the costs and benefits of change, this is likely to be an area for further

improvement in northern Australia.

Total live weight produced per cow

This ranges from 150-450 kgs globally (kg live

weight (lwt) produced per cow per year) -

weaners are the main part, but not all. The

performance of Australian systems is in the

middle and is quite diverse, ranging from

200kg to 320kg lwt, with the exception of the

northern Australian system (AU-1550 northern

live export) that is comparable to the cut &

carry systems of Indonesia at around 100kg

lwt per cow, and this could potentially be an

area for significant improvement. This

indicator is driven by reproductive rates,

generation interval, growth rates and turn-off

weights.

Figure 9 Total kg live weight produced per cow

Farm identication is number of cowsSource: agri benchmark

0

50

100

150

200

250

300

350

400

450

500

AT-3

0FR

-80B

DE

-1100

AT-2

5C

IE-3

0U

K-1

05

FR

-85

DE

-100

UK

-100

UK

-70

FR

-80

AU

-180

CN

-2U

S-1

60B

AU

-600

DE

-1400

US

-160A

CA

-200A

US

-600

DE

-300

ZA

-400

CA

-200B

AU

-200

AU

-350

CA

-800A

ZA

-250

AU

-2350

AU

-880

CN

-140

ZA

-350

CA

-800B

AR

-800

ZA

-200

UY

-115

AU

-540

AR

-850

RU

-450

AR

-1100A

BR

-1200

AR

-1100B

UY

-220

CO

-400

CO

-1100

ID-2

UY

-150

CO

-220

BR

-2500

ID-4

AU

-1550

ID-3

Kg lwt produced per cow

Adult cattle sold/going to finishing Calves sold/going to finishing

Breeding animals Cull and slaughter animals

Australia

Australia

Australia

Australia

13



Weaner and cull cow prices

Overall, Australian weaner prices are similar to those elsewhere in the pasture-based systems

of the southern hemisphere (Colombia and South Africa), but 30-40% lower than prices in

Brazil, Argentina and Uruguay; and less than half of prices received in the EU, China and

Indonesia. In 2014 Australian prices were only 25-30% of those received in North America.

Cull cow prices in Australia tend to be similar to those of South America and Africa, but are

only 20-35% lower than those received in North America, Europe and Asia.

Total cost of cow-calf production

Australia maintains a comparably low total

cost of production in cow-calf systems, but

similar to comparable systems in South

American, some Indonesian, Chinese,

Canadian and South African typical cow-calf

systems. In most countries, non-factor costs4

make up 40-50% of the total cost of

production, and Australia tends to have similar

cost structures to that of the South Americans.

Most European countries maintain total costs

of production 2-3 times higher than that for the

low cost countries like Australia.

Labour costs and productivity

Labour costs in Australia are amongst the

highest in the world, but have declined between 2013 and 2014 in US dollar terms. Australia's

average wages paid for employed staff in 2014 is around US$21/hr, with the opportunity cost

of family labour around US$23/hr. European, North American and South American countries

averaged $17/hr (excluding Russia @ $5/hr), $20/hr (Canada averages $26/hr), and $9/hr

respectively. Taking into account the productivity of the labour (labour costs per 100kg lwt

beef produced), the contribution of labour costs to the production of beef from Australian Cow-

calf systems is similar to that achieved in some South America, US, Asian and South African

systems, where labour is relatively cheaper. European systems have high labour productivity

costs due to low productivity per unit of labour input, whereas Canada has high labour costs

and lower productivity than Australian systems.

4 Non-factor costs include all the operating costs of the enterprise, both variable and allocated fixed costs.

Figure 10 Total cost of cow-calf production(US$ per 100kg live weight sold)


US$ per 100kg live weight sold

Farm identication is number of cows

0

100

200

300

400

500

600

700

800A

T-2

5C

AT

-30

DE

-10

0D

E-3

00

DE

-11

00

DE

-14

00

FR

-80

BF

R-8

0F

R-8

5U

K-7

0U

K-1

00

UK

-10

5R

U-4

50

CA

-20

0A

CA

-20

0B

CA

-80

0B

CA

-80

0A

US

-16

0A

US

-16

0B

US

-60

0

AR

-80

0A

R-8

50

AR

-11

00

AA

R-1

10

0B

UY

-22

0U

Y-1

15

UY

-15

0B

R-1

20

0C

O-1

10

0

CN

-2C

N-1

40

ID-2

ID-3

KZ

-50

0

AU

-18

0A

U-2

00

AU

-35

0A

U-5

40

AU

-60

0A

U-8

80

AU

-15

50

AU

-23

50

ZA

-20

0Z

A-2

50

ZA

-35

0

Non-factor costs Total labour cost Total land cost Total capital cost

Australia

14



Total costs, returns and profitability of cow-calf production in 2014

The South American and Australian systems, and some Asian and South African, maintain the

lowest cash costs and total costs. Most cow-calf systems are capable of producing short and

medium-term profits (enterprise returns less cash costs and depreciation), but only a few

producers are capable of producing long-run profits (enterprise returns less total costs).

All of Australia's eight pasture-based farms achieved medium-run profits from the cow-calf

portion of their operations in 2014, with only one (AU-2350) covering cash costs, depreciation

and their opportunity costs. Even though 2014 recorded significantly lower cattle prices in

Australia than in most other countries, the

result is an improvement on 2013 profitability

levels. Only Canadian and some systems in

the US, Argentina, Uruguay and Asia cover

their opportunity costs.

Generally, European systems are high cost

systems and most are not capable of

maintaining short or medium-run profits in

2014, with the exception of France and

Ireland. With additional income provided by

government payments (coupled payments),

most cover cash costs and depreciation, but

only two French systems cover their

opportunity costs. Australia

Figure 11 Costs, returns and profitability of cow-calf production 2014 (US$ per 100kg live weight sold)


US$ per 100kg live weight sold

0

100

200

300

400

500

600

700

800A

T-2

5C

AT

-30

DE

-10

0D

E-3

00

DE

-1100

DE

-1400

FR

-80

BF

R-8

0F

R-8

5U

K-7

0U

K-1

00

UK

-10

5IE

-30

RU

-45

0

CA

-20

0A

CA

-20

0B

CA

-80

0B

CA

-80

0A

US

-16

0A

US

-16

0B

US

-600

MX

-12

0

AR

-80

0A

R-8

50

AR

-11

00

AA

R-1

10

0B

UY

-22

0U

Y-1

15

UY

-15

0B

R-1

20

0B

R-2

50

0C

O-2

20

CO

-40

0C

O-1

10

0

CN

-2C

N-1

40

ID-2

ID-3

ID-4

AU

-18

0A

U-2

00

AU

-35

0A

U-5

40

AU

-60

0A

U-8

80

AU

-15

50

AU

-23

50

ZA

-20

0Z

A-2

50

ZA

-35

0Z

A-4

00

Opportunity cost Depreciation Cash cost

Cow/Calf returns Cow/Calf returns + government payments

In comparison…Australian cow-calf systems have:In comparison…Australian cow-calf systems have:In comparison…Australian cow-calf systems have:In comparison…Australian cow-calf systems have:In comparison…Australian cow-calf systems have:

••••• MorMorMorMorMore diversified whole fare diversified whole fare diversified whole fare diversified whole fare diversified whole farm systems (maintaining both cow-calf and finishing systemsm systems (maintaining both cow-calf and finishing systemsm systems (maintaining both cow-calf and finishing systemsm systems (maintaining both cow-calf and finishing systemsm systems (maintaining both cow-calf and finishing systemswithin the same business)within the same business)within the same business)within the same business)within the same business)

••••• Moderate to low weaning rates and moderate to low prModerate to low weaning rates and moderate to low prModerate to low weaning rates and moderate to low prModerate to low weaning rates and moderate to low prModerate to low weaning rates and moderate to low productivity per cowoductivity per cowoductivity per cowoductivity per cowoductivity per cow, especially in, especially in, especially in, especially in, especially innornornornornorthertherthertherthern systems which have comparatively low rn systems which have comparatively low rn systems which have comparatively low rn systems which have comparatively low rn systems which have comparatively low reprepreprepreproductive rates, extendedoductive rates, extendedoductive rates, extendedoductive rates, extendedoductive rates, extendedgeneration intervals, lower grgeneration intervals, lower grgeneration intervals, lower grgeneration intervals, lower grgeneration intervals, lower growth rates and turowth rates and turowth rates and turowth rates and turowth rates and turn-ofn-ofn-ofn-ofn-off weights.f weights.f weights.f weights.f weights.

••••• Low rLow rLow rLow rLow revenues due to significantly lower weaner (30% lower than South America andevenues due to significantly lower weaner (30% lower than South America andevenues due to significantly lower weaner (30% lower than South America andevenues due to significantly lower weaner (30% lower than South America andevenues due to significantly lower weaner (30% lower than South America andonly a thironly a thironly a thironly a thironly a third of prices rd of prices rd of prices rd of prices rd of prices received in the EU and Noreceived in the EU and Noreceived in the EU and Noreceived in the EU and Noreceived in the EU and North America) and cull cow prices.th America) and cull cow prices.th America) and cull cow prices.th America) and cull cow prices.th America) and cull cow prices.

••••• But, continue to maintain, year on yearBut, continue to maintain, year on yearBut, continue to maintain, year on yearBut, continue to maintain, year on yearBut, continue to maintain, year on year, some of the lowest cost cow-calf systems in the, some of the lowest cost cow-calf systems in the, some of the lowest cost cow-calf systems in the, some of the lowest cost cow-calf systems in the, some of the lowest cost cow-calf systems in theworld.world.world.world.world.

••••• Good shorGood shorGood shorGood shorGood short and medium tert and medium tert and medium tert and medium tert and medium term prm prm prm prm profitability was achieved in all Australian systems duringofitability was achieved in all Australian systems duringofitability was achieved in all Australian systems duringofitability was achieved in all Australian systems duringofitability was achieved in all Australian systems during2014, which is an impr2014, which is an impr2014, which is an impr2014, which is an impr2014, which is an improvement on 2013.ovement on 2013.ovement on 2013.ovement on 2013.ovement on 2013.

••••• High labour prHigh labour prHigh labour prHigh labour prHigh labour productivity (kg lwt productivity (kg lwt productivity (kg lwt productivity (kg lwt productivity (kg lwt produced per hour of labour input) to compensate foroduced per hour of labour input) to compensate foroduced per hour of labour input) to compensate foroduced per hour of labour input) to compensate foroduced per hour of labour input) to compensate forhigh wage rates (although many countries cost of wages arhigh wage rates (although many countries cost of wages arhigh wage rates (although many countries cost of wages arhigh wage rates (although many countries cost of wages arhigh wage rates (although many countries cost of wages are beginning to rise toe beginning to rise toe beginning to rise toe beginning to rise toe beginning to rise toAustralian levels, largely driven by exchange rates, Canada currAustralian levels, largely driven by exchange rates, Canada currAustralian levels, largely driven by exchange rates, Canada currAustralian levels, largely driven by exchange rates, Canada currAustralian levels, largely driven by exchange rates, Canada currently has the highestently has the highestently has the highestently has the highestently has the highestlabour costs)labour costs)labour costs)labour costs)labour costs)

15



Cattle finishing enterprisesThere was some improvement in beef cattle farm finishing enterprise incomes in 2013 across

almost all countries.

While beef finishing farms in almost all countries made short-term (cash) profits in 2013 (one

exception being eastern Australian farms in drought) and mid-term profits (covering cash

costs and depreciation), few made a long-term profit (do not cover the opportunity cost of

inputs).

Live weight at start and weight at end of finishing phase

Data indicates that many European systems (predominantly silage/grain based) have long

finishing periods and high final weights (600-700kg finished live weight) with very low

comparable starting weights (~ 100kg lwt). These cattle come from dairy herds and are either

Holstein or dual purpose breeds, like Fleckvieh.

Australian systems are similar to North American and UK systems, which have similar total

weight gains in finishing (400-600kg finished

live weight) and similar entry weights (200-

300kg lwt). South American systems tend to

be in-between (150-200kg lwt at entry with

around a 500kg finished weight). In all these

countries, the vast majority of feeder cattle

come from specialist cow-calf operations,

hence animals are older and heavier when

they enter the finishing process. Some

Australian and South American systems on

pastures are characterized by long finishing

periods of 500-1000 days.

Figure 12 Change in live weight (kg) and finishing period (days)


Change in kg lwt during finishing

Pasture systems Silage systemsFeedlots

Cu

t & C

arry

Farm identication is number of finished cattle sold

0

100

200

300

400

500

600

700

800

ID-4

ID-2

AR

-630

AR

-900

CN

-2000

BW

-2000

AR

-26K

ZA

-75K

NA

-25K

MX

-1500

ZA

-3000

ES

-430

BR

-680

PE

-1700

ES

-5500

ES

-520

CN

-940

US

-7200

CA

-28K

US

-75K

ID-1

00

AR

-800

CO

-160

AU

-150

AU

-360

AU

-380

AR

-380

CO

-520

AU

-85

AU

-65

AU

-900

AU

-540

BR

-400

UY

-90

BR

-800

BR

-60

CO

-130

BR

-360

BR

-1750

NZ

-375

AU

-320

UK

-80

IE-4

0

CN

-300

CO

-800

RU

-640

UK

-90

DE

-800

FR

-70

UK

-750

CN

-70

DE

-285

UK

-45

AT

-120

AT

-25F

CN

-150

AT

-35

AT

-175T

DE

-280

FR

-60

DE

-260

FR

-200

DE

-525T

UK

16



Daily and net weight gain

There is a clear reflection between the daily weight gains observed in the data and the

observed changes in liveweight and the extent of the finishing period. As would be expected,

most feedlot weight gains exceed those of achieved in pasture and silage systems. Notably,

around half of the European silage based systems achieved similar or higher weight gains

than the lowest performing feedlots from China

and Argentina.

Our pasture based systems had very mixed

results for 2014, as our best pasture based

systems rank 1st (AU-540, NW NSW), and 6th

(AU-85, NSW southern tablelands) when

compared to other pasture systems on daily

weight gain. Northern Australian systems

continue to record some of the lowest weight

gains (AU-360 & AU-320) and are similar to

weight gains achieved in South American and

African systems.

Comparison of beef prices from2012 to 2014

Beef carcass prices generally ranged between US$300 and US$600/100kg cwt across the

globe in 2014, with the exception of closed or protected markets (through both tariff and non-

tariff trade barriers), such as China and Indonesia, where China experienced substantial

increases in beef prices, and Indonesia a

decline. European beef prices generally

decreased marginally from 2012-2013 and are

relatively consistent internally and higher than

southern hemisphere prices (maintained by

import barriers). Canada and the USA have

both experienced significant increases in beef

prices from 2013 to 2014. Australia, southern

Africa and South American pasture-based

systems receive some of the lowest prices

(reflecting lower costs and, in Australia's

case, drought and cattle over-supply), which

were around the same levels as in 2013, but

lower than those received in 2012.

Figure 13 Daily Live weight gain (grams/day)


Grams lwt / day

Feedlots Silage systems

Cut &

Carry

Pasture systems


0

200

400

600

800

1000

1200

1400

1600

1800

2000

Ind

o 4

Ind

o 2

Arg

90

0C

hin

a 9

40

Ch

ina 2

00

0A

rg 3

60

Sp

ain

43

0M

exic

o 1

50

0S

pain

52

0A

rg 2

6k

Sp

ain

55

00

US

72

00

Peru

17

00

Can

ad

a 2

8k

S A

fric

a 7

5k

US

75

kS

Afr

ica 3

00

0N

am

ibia

25

kB

razi

l 6

80

Au

st

360

Uru

gu

ay 9

0N

am

ibia

60

0B

razi

l 4

00

Au

st

320

Bra

zil 3

60

Au

st

900

Au

st

150

Bra

zil 6

0A

ust

380

Bra

zil 8

00

Co

lom

bia

13

0B

razi

l 1

75

0In

do

10

0C

olo

mb

ia 1

60

Arg

38

0A

rg 8

00

Au

st

85

Irela

nd

40

Co

lom

bia

52

0U

K 8

0N

Z 3

75

Au

st

65

Au

st

540

UK

45

UK

90

UK

75

0G

erm

an

y 2

85

Co

lom

bia

80

0G

erm

an

y 8

00

Ru

ssia

64

0G

erm

an

y 2

80

Sh

ina 3

00

Ch

ina 1

50

Fra

nce 7

0G

erm

an

y 2

60

Au

str

ia 3

5A

ustr

ia 1

20

Ch

ina 7

0F

ran

ce 2

00

Au

str

ia 1

75

TF

ran

ce 6

0Figure 14 2012-2014 beef prices received (US$/100kg lwt sold)


Au

str

iaG

erm

an

yF

ran

ce

Sp

ain

Italy

UK

Irela

nd

Sw

ed

en

Po

lan

dC

zech

Ukra

ine

Ru

ssia

Can

ad

aU

SA

Mexic

o

Arg

en

tin

aU

rug

uay

Bra

zil

Co

lum

bia

Peru

Ch

ina

Ind

on

esia

Nth

NS

W-6

5S

th N

SW

-85

Vic

-15

0C

en

tral Q

ld-3

20

NT

-36

0C

en

tral Q

ld-3

75

SE

Qld

-41

5N

th N

SW

-54

0S

E Q

ld-1

5K

NZ

-37

5

Mo

rocco

Tu

nis

iaS

Afr

ica

USD / 100 kg CW sold 2012 Beef price 2013 Beef price


Australia

0

100

200

300

400

500

600

700

800

9002014 Beef price

17



Costs of finishing

The high A$ and the drought have generally raised the cost of Australian beef production in

recent years, in US$ terms, relative to farms in the Americas and Europe.

For the majority of the world's finishing systems it costs around US$2-$7 per kg live weight

sold in 2014. This represents a slight increase on 2013 costs. The lowest cost finishing

systems exist in Africa, NZ, and South America. AU-360 (Northern Territory) and AU-900

(Central Qld) maintain comparably low costs (similar to South America and NZ), whereas the

other Australian systems are comparable to the lower cost European finishing systems. The

highest cost systems continue to occur in the Europe (Germany, Austria and the UK) and Asia

(China and Indonesia).

The high A$ and the drought have generally raised the cost of Australian beef production in

recent years, in US$ terms, relative to farms in the Americas and Europe, although this is

expected to reverse for the 2015 analysis.

Total costs and farm rankings

In 2014 feedlot and pasture based finishing

systems tended to have lower costs than

silage systems, although they are now only

marginally lower when compared to 2013.

Non-factor costs dominate in each finishing

system (of which 30-70% is the cost of

transferred/purchased livestock), although

land, capital and labour contribute more

significantly within pasture and silage systems

per unit of output.

Figure 15 Total average long-run cost of production (US$/100kg liveweight sold)


US$/100kg liveweight sold Non-factor costs incl. depreciation Total labour cost Total land cost Total capital cost

Cu

t & C

arry

Feedlots Pasture systems Silage systems

Farm identification numbers indicate finished cattle sold

0

200

400

600

800

1000

1200

Ind

o 4

Ind

o 2

Nam

ibia

25K

S A

fric

a 7

5K

S A

fric

a 3

000

Peru

1700

Mexic

o 1

500

Arg

26K

Bra

zil 6

80

Arg

630

US

75K

Arg

900

Sp

ain

5500

US

7200

Sp

ain

430

Canad

a 2

8K

Sp

ain

520

Chin

a 2

000

Chin

a 9

40

Ukra

ine 2

75

Co

lom

bia

520

Nam

ibia

600

NZ

375

Co

lom

bia

160

Aust

360

Aust

900

Uru

guay 9

0A

rg 3

80

Bra

zil 3

60

Bra

zil 4

00

Bra

zil 1

750

Arg

800

Bra

zil 8

00

Ind

o 1

00

Aust

540

Co

lom

bia

130

Aust

65

Aust

85

Aust

150

Aust

320

Bra

zil 6

0A

ust

380

Irela

nd

40

UK

80

Co

lom

bia

800

Germ

any 2

85

Germ

any 5

25T

UK

90

Russia

640

Chin

a 3

00

Germ

any 2

80

Fra

nce 2

00

Austr

ia 1

75T

Germ

any 2

60

Chin

a 1

50

Chin

a 7

0F

rance 6

0U

K 7

50

Austr

ia 1

20

Fra

nce 7

0A

ustr

ia 3

5G

erm

any 8

00

Austr

ia 2

5F

UK

45

Uruguay

18



The Australian systems, all pasture based systems, had a comparably high total costs of

finishing (in US$) in 2014, partly elevated by the higher A$ and higher feed costs in most

systems, but total costs were marginally reduced from 2013 levels due to lower livestock

(weaner) prices.

Finishing costs, returns and profitability

The majority of beef finishing systems around

the world did not generate high enough

returns to cover total costs of production in

2014 (long-run costs, including cash,

depreciation and opportunity costs) and, in

many cases, did not cover medium-term costs

of production (cash costs + depreciation), but

managed to break-even against short-term

(cash costs) costs. However, for most

systems, profitability has generally marginally

improved from their 2013 performance.

Generally the South American systems cover

the short and medium-run costs, with only a

few covering the opportunity costs and

generating long-run profits. The notable

exceptions were in China and Indonesia. In China, although costs continue to increase rapidly,

so have beef returns. In New Zealand the finishing system maintained a long-run breakeven

position.

Of Australia's eight pasture-based farms analysed, six covered both short and medium term

costs in 2014, which is an improvement on 2013 performance, however, no farms covered total

costs (inclusive of opportunity costs). This is due to both comparably lower beef prices, and

higher feeding costs for most systems in 2014, the carry-over and continuing effects of the

drought, but counteracted by lower weaner values. Australian systems, although most maintain

relatively low cash costs of production and low depreciation costs, they have high opportunity

costs (mainly land and to a lessor extent family labour).

It is also noticeable, that in Europe, even with the remaining low levels of government

payments (coupled payments), beef finishing systems generally did not produce a profit,

unlike cow-calf systems (which receive higher levels of government payments).

Figure 16 Cattle finishing costs, returns and profitability in 2014 (US$/100 lwt)


US$ / 100 kg cwt sold Opportunity cost Depreciation Cash cost Beef returns Beef returns + government payments

Australia

Profit


0

200

400

600

800

1000

1200

Austr

ia 2

5F

Austr

ia 3

5A

ustr

ia 1

20

Germ

any 2

60

Germ

any 2

85

Germ

any 5

25T

Germ

any 8

00

Fra

nce 6

0F

rance 7

0F

rance 2

00

Sp

ain

430

Sp

ain

520

Sp

ain

5500

UK

45

UK

80

UK

90

UK

750

Irela

nd

40

Russia

640

Canad

a 2

8K

US

7200

US

75K

Arg

380

Arg

630

Arg

800

Arg

900

Arg

26K

Uru

guay 9

0B

razil

60

Bra

zil

360

Bra

zil

400

Bra

zil

680

Bra

zil

800

Bra

zil

1750

Co

lom

bia

130

Co

lom

bia

160

Co

lom

bia

520

Co

lom

bia

800

Peru

1700

Chin

a 7

0C

hin

a 1

50

Chin

a 3

00

Chin

a 9

40

Chin

a 2

000

Ind

o 2

Ind

o 4

Ind

o 1

00

Aust

65

Aust

85

Aust

150

Aust

320

Aust

360

Aust

380

Aust

540

Aust

900

NZ

375

S A

fric

a 3

000

S A

fric

a 7

5K

Nam

ibia

600

Nam

ibia

25K

19



In comparison…Australian cattle finishing systems have:In comparison…Australian cattle finishing systems have:In comparison…Australian cattle finishing systems have:In comparison…Australian cattle finishing systems have:In comparison…Australian cattle finishing systems have:

••••• Moderate to high weight gains in southerModerate to high weight gains in southerModerate to high weight gains in southerModerate to high weight gains in southerModerate to high weight gains in southern beef systems, but low weight gains inn beef systems, but low weight gains inn beef systems, but low weight gains inn beef systems, but low weight gains inn beef systems, but low weight gains innornornornornorthertherthertherthern beef systems, parn beef systems, parn beef systems, parn beef systems, parn beef systems, partly due to drtly due to drtly due to drtly due to drtly due to drought, but also due to their feedbase (withought, but also due to their feedbase (withought, but also due to their feedbase (withought, but also due to their feedbase (withought, but also due to their feedbase (withperperperperperforforforforformance comparable to pasturmance comparable to pasturmance comparable to pasturmance comparable to pasturmance comparable to pasture-based South American and African systems).e-based South American and African systems).e-based South American and African systems).e-based South American and African systems).e-based South American and African systems).

••••• Received below average prices when comparReceived below average prices when comparReceived below average prices when comparReceived below average prices when comparReceived below average prices when compared to other countries, again red to other countries, again red to other countries, again red to other countries, again red to other countries, again reflecting theeflecting theeflecting theeflecting theeflecting thecontinuing impact of drcontinuing impact of drcontinuing impact of drcontinuing impact of drcontinuing impact of drought and an overought and an overought and an overought and an overought and an over-supply of cattle. Although most countries-supply of cattle. Although most countries-supply of cattle. Although most countries-supply of cattle. Although most countries-supply of cattle. Although most countriesexperienced a slight rexperienced a slight rexperienced a slight rexperienced a slight rexperienced a slight reduction in beef prices between 2012-2013 to 2014 (excludingeduction in beef prices between 2012-2013 to 2014 (excludingeduction in beef prices between 2012-2013 to 2014 (excludingeduction in beef prices between 2012-2013 to 2014 (excludingeduction in beef prices between 2012-2013 to 2014 (excludingthe US, Canada and China, wherthe US, Canada and China, wherthe US, Canada and China, wherthe US, Canada and China, wherthe US, Canada and China, where prices incre prices incre prices incre prices incre prices increased significantly).eased significantly).eased significantly).eased significantly).eased significantly).

••••• Low to moderate costs of prLow to moderate costs of prLow to moderate costs of prLow to moderate costs of prLow to moderate costs of production with roduction with roduction with roduction with roduction with returetureturetureturns that do not, generallyns that do not, generallyns that do not, generallyns that do not, generallyns that do not, generally, cover the long-, cover the long-, cover the long-, cover the long-, cover the long-terterterterterm costs of operation - in keeping with most beef finishing systems in the world.m costs of operation - in keeping with most beef finishing systems in the world.m costs of operation - in keeping with most beef finishing systems in the world.m costs of operation - in keeping with most beef finishing systems in the world.m costs of operation - in keeping with most beef finishing systems in the world.

••••• ReturReturReturReturReturns that imprns that imprns that imprns that imprns that improved marginally in 2014 froved marginally in 2014 froved marginally in 2014 froved marginally in 2014 froved marginally in 2014 from 2013 levels - which occurrom 2013 levels - which occurrom 2013 levels - which occurrom 2013 levels - which occurrom 2013 levels - which occurred in mosted in mosted in mosted in mosted in mostbeef finishing systems arbeef finishing systems arbeef finishing systems arbeef finishing systems arbeef finishing systems around the world.ound the world.ound the world.ound the world.ound the world.

••••• High labour and land opporHigh labour and land opporHigh labour and land opporHigh labour and land opporHigh labour and land opportunity costs, which tend not to be covertunity costs, which tend not to be covertunity costs, which tend not to be covertunity costs, which tend not to be covertunity costs, which tend not to be covered thred thred thred thred through beefough beefough beefough beefough beefrrrrreturetureturetureturns.ns.ns.ns.ns.

Argentina

20



GLOBAL PERFORMANCE OF SHEEP FARMSGlobal demand for sheepmeat has been rising steadily over recent decades driven, in the

developing world, by population and income growth, the expansion of modern retailing,

foodservice outlets and cold storage facilities and the impacts on diets of urbanisation and

westernisation and, in developed markets (eg in Europe, the US, Canada and Japan), by

interest in lamb as an alternate niche product. The rise in demand has been most noticeable

across growing Muslim countries (especially the Middle East and north African country's)

where sheep and goat meats are traditional to diets and ceremonies.

At the same time, sheepmeat supply has fluctuated in line with the increasingly fickle climate

and due to instability in the price of companion products and their competition against sheep

meat in many farming systems (especially wool and crops in Australia), as well as increasing

environmental constraints (most noticeably in China and Africa), as well as a range of other

constraints like ageing farmers and predators.

Hence, sheepmeat prices have risen appreciably in the past 20 years, but have been much

more volatile than for other meats, including beef. Adding to this global price volatility is the

fact that only around 8% of world sheepmeat is traded and over 80% of traded product comes

from only two suppliers, Australia and New Zealand.

This means that whenever global supply has fallen, or even failed to expand, especially in

Australia and New Zealand, sheepmeat prices have quickly jumped to a new level. The latest

peak was the most dramatic of all, reaching highs in 2011 following simultaneous supply falls

in Australia and New Zealand.

Sheepmeat prices settled back during the 2012-2014 period, as simultaneous droughts in

Australia and New Zealand saw supply fall on world markets. More recently prices have fallen

back to the lows of 2013, but are expected to rise again as the recent fall in Oceania flocks is

reflected in lambs available and sheepmeat production, and as China continues to grow as a

major importer, following years of stagnant sheepmeat supply and record internal prices.

Chinese imports are not only growing but they are also evolving; as carcase imports into China

are increasing. There is also high demand for low value product with hot pot restaurant growth

in China creating high demand for lamb flaps.

The rising demand and greater constraints on supply faced by sheep enterprises relative to

cattle has helped to produce and maintain long-term sheepmeat profitability across almost all

countries (in contrast to cattle), but without any imminent threat of a sustained supply

response to burst prices and profits.

21



Whole farm profitability(‘000 US$)All but 3 of the 34 typical farming systems

(across 16 countries) managed to make a

profit at the whole farm level, although this is

partly dependent on other enterprises or non-

farm returns (coupled and non-coupled

government payments).

On a whole farm profit basis (medium-term

profitability), Australia's 'typical' sheep farms

were the most profitable (in US$ terms), in

part due to their scale and crop incomes. Two of the WA farms, AU-4800 and AU7800, were

the most profitable globally, followed by AU-2000 (central NSW) and the NZ farm.

Australian sheep farms generally maintain higher levels of profitability due to the

diversification of the typical mixed farming systems and their scale. In 2014, cropping returns

in particular, especially in the WA systems, were generally above average due to both

favourable prices and yields, except for AU-2000WA, which was the only Australian to produce

a loss in 2014.

On average, European farms achieved a net profit margin of -57% without government

payments in 2014, but with achieved an average net profit margin of 23%, whereas Australian

farms averaged 32%. Globally this represents a marginal increase in profitability when

compared to 2013.

Figure 17 Whole sheep farm profitability (‘000 US$)


US$ '000 per farm

Total cost from P&L account

Market returns

Farm identication is number of ewes

Australia

Market returns + coupled + decoupled payments

0

500

1,000

1,500

2,000

2,500

Germ

an

y 6

00

Germ

an

y 1

20

0

Sp

ain

80

0S

pain

95

0S

pain

15

00

Fra

nce 4

70

Fra

nce 5

00

Fra

nce 7

50

Fra

nce 8

60

Irela

nd

23

0

UK

40

0U

K 4

50

UK

50

0

Mexic

o 3

00

Bra

zil 3

5B

razi

l 1

50

Uru

gu

ay 6

00

Ch

ina 2

70

Ch

ina 3

40

NS

W 1

25

0N

SW

16

00

NS

W 2

00

0V

ic 3

00

0W

A 2

00

0W

A 4

80

0W

A 7

80

0

NZ

32

00

Alg

eria 3

00

Mo

rocco

30

0

Tu

nis

ia 4

0

Nam

ibia

10

00

Nam

ibia

30

00

S A

fric

a 8

50

S A

fric

a 1

50

0S

Afr

ica 1

80

0

Profit

Spain

22



Sheep flock costs, returns and profitability (US$/100kg lwt)When the 2014 profitability of the sheep flock is examined, without taking into account income

from other enterprises on the same farm or government payments, the global financial

performance is generally positive (better than for cattle) and higher than that achieved in 2013.

Many countries, even with significant

government payments (excludes de-coupled

payments), are not profitable in the longer

term. The exception to this is Uruguay, New

Zealand, China and some systems in Australia

and Africa. The profitability of sheep flocks in

many other parts of the world was marginally

higher than that achieved in 2012 and 2013,

although total returns still failed to or only just

covered short-term cash costs, even though

total revenues had risen.

In 2014, all of the typical sheep flocks

analysed in Australia covered short and medium term costs (includes depreciation), with four

of them (NSW-2000, NSW-3000, WA-4800 and WA-7800) covering long-term costs (opportunity

costs), with the remainder contributing to, but not fully covering opportunity costs. For the

majority of Australian systems this has improved from 2011 to 2014.

HOW EFFICIENT ARE AUSTRALIANSHEEPMEAT PRODUCERS?

Total returns (US$/100kg lwt)Australian sheep systems are diversified in comparison to the rest of the world, with wool and

cropping being major sources of additional income. The majority of Australian systems are in

mixed farming zones, which also represent areas of highest sheep production and flock sizes.

Wool income, which has increased from 2013 levels, is only a significant contributor to income

in Australia, NZ, China, Uruguay and South Africa. Other countries, like the UK, NZ and

Uruguay, also commonly maintain diversification with cattle enterprises.

Australian and NZ typical sheep farms are the largest by global standards, having from 2 to 8

times higher total returns (revenue) from the business.

Australia

Figure 18 Flock costs, returns and profitability(US$/100kg lwt)


US$ / 100 kg liveweight

Opportunity cost Depreciation Cash cost Total returns

Farm identification numbers represent number of ewes

Profit

0

100

200

300

400

500

600

700

800

900

1000

Germ

an

y 6

00

Germ

an

y 1

20

0S

pain

80

0S

pain

95

0S

pain

15

00

Fra

nce 4

70

Fra

nce 5

00

Fra

nce 7

50

Fra

nce 8

60

Irela

nd

23

0U

K 4

00

UK

45

0U

K 5

00

Mexic

o 3

00

Bra

zil 3

5B

razi

l 1

50

Uru

gu

ay 6

00

Ch

ina 2

70

Ch

ina 3

40

NS

W 1

25

0N

SW

16

00

NS

W 2

00

0V

ic 3

00

0W

A 2

00

0W

A 4

80

0W

A 7

80

0

NZ

32

00

Alg

eria 3

00

Mo

rocco

30

0T

un

isia

40

Nam

ibia

10

00

Nam

ibia

30

00

S A

fric

a 8

50

S A

fric

a 1

50

0S

Afr

ica 1

80

0

23



Figure 19 Total sheep enterprise returns(US$/100kg lwt) - 2014


Australia



0

100

200

300

400

500

600

700

800

900

1,000

Germ

an

y 6

00

Germ

an

y 1

20

0S

pain

80

0S

pain

95

0S

pain

15

00

Fra

nce 4

70

Fra

nce 5

00

Fra

nce 7

50

Fra

nce 8

60

Irela

nd

23

0U

K 4

00

UK

45

0U

K 5

00

Mexic

o 3

00

Bra

zil 3

5B

razi

l 1

50

Uru

gu

ay 6

00

Ch

ina 2

70

Ch

ina 3

40

NS

W 1

25

0N

SW

1600

NS

W 2

000

Vic

30

00

WA

20

00

WA

48

00

WA

78

00

NZ

32

00

Alg

eria 3

00

Mo

rocco

30

0T

un

isia

40

Nam

ibia

10

00

Nam

ibia

30

00

S A

fric

a 8

50

S A

fric

a 1

50

0S

Afr

ica 1

80

0

Government payments Other returns Wool and skin market receipts Weaned lamb and transfer to lamb finishing receipts

Breeding livestock receipts Cull receipts Slaughter animals receipts

There is large global variation in total returns

(revenue) per 100kg lwt sold. Countries like

Germany, Spain, Ireland, UK and France (EU

countries) receive significant amounts of

government payments. These are either Whole

Farm Payments (Germany, Ireland), Livestock

Payments (FR-470, ES-1500) or a combination

of the two.

In Australia, the total returns for the eastern

typical farms had mixed results, with AU-2000

and AU-3000 increasing returns across most

categories in comparison to 2013, whereas the

western typical farms also had increased

sheep enterprise returns, for both livestock and wool sales. For the Australian Merino based

typical farms (AU-1600, AU-2000WA, AU-4800 and AU-7800) wool returns made up over 40%

of total returns, which is only matched by two of the South African farms.

Total liveweight sold per ewe (kg lwt per ewe)5

Generally Australian systems produce above average kilograms of meat (live weight) per ewe,

with the exception of AU-1600 which is predominantly based on a fine wool Merino flock. The

highest production per ewe came from the two dedicated lamb producing flocks, AU-1250 and

AU-3000, which are comparable to the highest meat producing flocks in Europe.

Low levels of production per hectare tend to

come from regions with lower rainfall and

rangelands environments. Moderate to high

productivity occurs in higher rainfall regions

across Europe, Australia and NZ. Very high

land productivity occurs in systems in Mexico

and Tunisia, where animals are housed.

Comparatively, Australian farms found in lower

rainfall zones of WA and NSW are also similar

to Uruguay, China, Morocco and parts of

Europe. The higher rainfall farms found in

south west WA, western Victoria and central

NSW have comparable land productivity to

European, UK and NZ systems.

5 Total live weight sold per ewe is generally dominated by the sale of slaughter lambs in most production systems, although a fewexceptions exist where there are well established finishing systems (UK, Algeria and Tunisia).

Figure 20 Total liveweight sold per ewe (kg)

Total live weight sold per ewe (kg)

Australia

Source: agri benchmark Farm identification numbers represent number of ewes

0

10

20

30

40

50

60

70

80

Germ

an

y 6

00

Germ

an

y 1

20

0S

pain

80

0S

pain

95

0S

pain

15

00

Fra

nce 4

70

Fra

nce 5

00

Fra

nce 7

50

Fra

nce 8

60

Irela

nd

23

0U

K 4

00

UK

45

0U

K 5

00

Mexi

co

30

0B

razi

l 35

Bra

zil 1

50

Uru

gu

ay

60

0

Ch

ina 2

70

Ch

ina 3

40

NS

W 1

250

NS

W 1

600

NS

W 2

000

Vic

30

00

WA

20

00

WA

48

00

WA

78

00

NZ

32

00

Alg

eria 3

00

Mo

rocco

30

0T

un

isia

40

Nam

ibia

10

00

Nam

ibia

30

00

S A

fric

a 8

50

S A

fric

a 1

50

0S

Afr

ica 1

80

0 Adults sold/going to finishing

Lambs sold/going to finishing

Breeding animals

Cull animals

Slaughter lambs

24



Losses of ewes (annual) and lambs (birth to weaning)Australia tends to have similar ewe and lamb losses to most other regions of the world, with

the exception of South Africa, Brazil and France. In South Africa this is predominantly caused

by predators, particularly the Jackal, Brazil the rangelands systems under which they run, and

in France, due to their intensive multiple lambing systems, high proportions of multiple births,

and a shift in focus on to meat production with reduced emphasis on mothering ability. Ewe

losses globally tends to vary between 2% to 7%, while lamb losses varies from 2%-17%, with

Australian systems maintaining ewe and lamb losses at around 6% or less.

Weaned lambs per 100 ewes per yearEuropean farms tend to have higher weaning

rates than Australian farms, primarily due to

more prolific breeds in addition to nutrition

(supplementary feeding), or multiple lambing's

as occurs in France. Australian farms tend to

maintain similar weaning rates to more

rangeland or less-developed production

systems where nutrition and/or genetics may be

constraints. This, more than likely, presents the

area of greatest opportunity for Australian

production systems, depending on the cost-

effectiveness of increasing weaning rates,

although flocks from higher rainfall regions (AU-

1250 in central NSW and AU-3000 in western

Vic) achieve comparable weaning rates to the

representative European and NZ systems.

Lamb growth rates – birth to weaning and/orslaughter (grams lwt/day)Lamb growth rates on typical Australian farms varied significantly, though Australian systems

generally maintain above average growth rates for animals being sold or slaughtered at

weaning - comparable to most global regions, including Europe and NZ.

However, for lambs grown out beyond weaning (slaughtered later), Australian growth rates are

mixed but still average above those in NZ and Brazil (but below those in the more intensive

European meat lamb production systems). Feed quality (& quantity) and genotype also

strongly influence growth rates, which is highlighted when comparing average lamb growth

rates across different categories of sheep production systems.

Figure 21 Weaned lambs per 100 ewes per year


Weaned lambs per 100 ewes per year

Australia

0

20

40

60

80

100

120

140

160

180

Germ

any

600

Germ

any

1200

Sp

ain

800

Sp

ain

950

Sp

ain

1500

Fra

nce 4

70

Fra

nce 5

00

Fra

nce 7

50

Fra

nce 8

60

Irela

nd

230

UK

400

UK

450

UK

500

Mexic

o 3

00

Bra

zil 3

5B

razi

l 150

Uru

guay

600

Chin

a 2

70

Chin

a 3

40

NS

W 1

250

NS

W 1

600

NS

W 2

000

Vic

3000

WA

2000

WA

4800

WA

7800

NZ

3200

Alg

eria 3

00

Moro

cco 3

00

Tunis

ia 4

0N

am

ibia

1000

Nam

ibia

3000

S A

fric

a 8

50

S A

fric

a 1

500

S A

fric

a 1

800

25



Figure 22 Lamb growth rates for store and slaughter lambs: from birth to weaning or slaughter (g lwt/day)


grams per day

Australia

0

50

100

150

200

250

300

350

400

450

Germ

an

y 6

00

Germ

an

y 1

20

0

Sp

ain

80

0

Sp

ain

95

0

Sp

ain

15

00

Fra

nce 4

70

Fra

nce 5

00

Fra

nce 7

50

Fra

nce 8

60

Irela

nd

23

0

UK

40

0

UK

45

0

UK

50

0

Mexic

o 3

00

Bra

zil 3

5

Bra

zil 1

50

Uru

gu

ay 6

00

Ch

ina 2

70

Ch

ina 3

40

NS

W 1

25

0

NS

W 1

600

NS

W 2

00

0

Vic

30

00

WA

20

00

WA

48

00

WA

78

00

NZ

32

00

Alg

eria 3

00

Mo

rocco

30

0

Tu

nis

ia 4

0

Store lambs - birth to weaning Slaughtered at weaning - birth to slaughterSlaughtered later - birth to slaughter

Overall, mean global weaning age was

around 90-150 days, with values ranging from

45-60 in Spain and Mexico (due to very light

slaughter weight markets) and Algeria (due to

lamb finishing systems); and up to 180 days

in Germany (due to on-farm lamb finishing)

and Namibia (nutritional and management

constraints).

Cash and total costs6 ofmeat production (US$/100kg lwt)It is noticeable that many countries have well

over US$2/kg lwt cash costs. Australian

systems are well represented in the <US$2/kg

lwt category to cover cash costs (with the

exception of AU-1600 and AU-2000WA),

whereas, of all the farms covered globally, only

one Australian and South African farm,

Uruguay, Namibia and NZ have total costs

<US$2/kg lwt.

The changes in total costs of sheep meat

production across the world from 2013 to 2014

were mixed. Costs fell in Australia (average

across farms of an 12% reduction which is

partly influenced by exchange rates); and reduced marginally in the America's and China

(1%), whereas in Europe, NZ and MENA costs rose by 4% to 7%. This is in part due to drought

in MENA countries and the lack of availability of supplements after a wet spring in European

countries, and rising labour, land and feeding costs in NZ.

The significant outlier to the changes in costs of production is China, where the total costs of

sheep production increased by 25% during 2012 and 2013, primarily due to increased costs of

labour with hourly labour costs doubling, albeit from a very low level, but which has

dramatically slowed and marginally declined from 2013 to 2014 (-1%).

6 The cash or non-factor costs represent largely variable costs directly associated with the enterprise. Feed and machinery are the dominant non-factor costs in Europe, with feed costs predominating everywhere else, except AU, NZ, CN UY and NA. Other inputs to ewe enterprises aredirectly allocated cash costs, such as enterprise specific wages (shearing, marking etc), and these represent major costs to Australiansystems. Animal purchase costs are also important in AU-1250 due to being a non-self-replacing system (i.e. buys replacement ewes). Totallong-run costs allow for depreciation and opportunity costs (including labour, land and capital).

Figure 23 Cash and total long-run costs of sheepmeat production (US$/100kg)



Total costs Cash costs

Uru

gu

ay

60

0

Au

st W

A 4

80

0

NZ

32

00

S A

fric

a 1

80

0

Na

mib

ia 3

00

0

Au

st V

ic 3

00

0

Au

st W

A 7

80

0

Au

st N

SW

12

50

Na

mib

ia 1

00

0

Bra

zil

15

0

Au

st

NS

W 2

00

0

Ch

ina

34

0

Au

st W

A 2

00

0

Bra

zil

35

S A

fric

a 1

50

0

Me

xic

o 3

00

Ire

lan

d 2

30

UK

50

0

Au

st N

SW

16

00

UK

45

0

Fra

nc

e 7

50

Fra

nc

e 4

70

S A

fric

a 8

50

Fra

nc

e 8

60

Ch

ina

27

0

Fra

nc

e 5

00

Sp

ain

80

0

Sp

ain

15

00

Alg

eri

a 3

00

Sp

ain

95

0

Tu

nis

ia 4

0

Ge

rma

ny

12

00

Ge

rma

ny

60

0

UK

40

0 Mo

roc

co

30

00

200

400

600

800

1000

1200


26



© Meat & Livestock Australia Limited, 2016. ABN 39 081 678 364.

MLA makes no representations as to the accuracy of any information or advice contained in this publication and excludes all liability, whether incontract, tort (including negligence or breach of statutory duty) or otherwise as a result of reliance by any person on such information or advice.All use of MLA publications, reports and information is subject to MLA’s Market Report and Information Terms of Use. Please read our terms ofuse carefully and ensure you are familiar with its content – click here for MLA’s terms of use.

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For further information please call toll free 1800 023 100 or 02 9463 9333

In comparison…Australian sheep systems have:In comparison…Australian sheep systems have:In comparison…Australian sheep systems have:In comparison…Australian sheep systems have:In comparison…Australian sheep systems have:

••••• Low losses, morLow losses, morLow losses, morLow losses, morLow losses, mortalities and wastage in the systemtalities and wastage in the systemtalities and wastage in the systemtalities and wastage in the systemtalities and wastage in the system

••••• Moderate to high meat prModerate to high meat prModerate to high meat prModerate to high meat prModerate to high meat production efoduction efoduction efoduction efoduction efficiencyficiencyficiencyficiencyficiency

••••• Moderate rModerate rModerate rModerate rModerate reprepreprepreproductive efoductive efoductive efoductive efoductive efficiency - with potential for furficiency - with potential for furficiency - with potential for furficiency - with potential for furficiency - with potential for further imprther imprther imprther imprther improvement throvement throvement throvement throvement throughoughoughoughoughnutritional management and genetics - if economic to do sonutritional management and genetics - if economic to do sonutritional management and genetics - if economic to do sonutritional management and genetics - if economic to do sonutritional management and genetics - if economic to do so

••••• Above average gr Above average gr Above average gr Above average gr Above average growth rates prowth rates prowth rates prowth rates prowth rates pre weaning, but post-weaning about averagee weaning, but post-weaning about averagee weaning, but post-weaning about averagee weaning, but post-weaning about averagee weaning, but post-weaning about average

••••• High labour costs, but maintain excellent labour prHigh labour costs, but maintain excellent labour prHigh labour costs, but maintain excellent labour prHigh labour costs, but maintain excellent labour prHigh labour costs, but maintain excellent labour productivity which makes Australiaoductivity which makes Australiaoductivity which makes Australiaoductivity which makes Australiaoductivity which makes Australiaone of the most labour efone of the most labour efone of the most labour efone of the most labour efone of the most labour efficientficientficientficientficient

••••• Comparably low to moderate sheep rComparably low to moderate sheep rComparably low to moderate sheep rComparably low to moderate sheep rComparably low to moderate sheep returetureturetureturns, which have imprns, which have imprns, which have imprns, which have imprns, which have improved froved froved froved froved from 2013 levels,om 2013 levels,om 2013 levels,om 2013 levels,om 2013 levels,and maintain low total costs of prand maintain low total costs of prand maintain low total costs of prand maintain low total costs of prand maintain low total costs of production which continue to decline year on yearoduction which continue to decline year on yearoduction which continue to decline year on yearoduction which continue to decline year on yearoduction which continue to decline year on year(the only countr(the only countr(the only countr(the only countr(the only country to do so), exchange rates will have an impory to do so), exchange rates will have an impory to do so), exchange rates will have an impory to do so), exchange rates will have an impory to do so), exchange rates will have an important rtant rtant rtant rtant role herole herole herole herole here into 2015e into 2015e into 2015e into 2015e into 2015

••••• Good and continuing sheep enterprise prGood and continuing sheep enterprise prGood and continuing sheep enterprise prGood and continuing sheep enterprise prGood and continuing sheep enterprise profitability acrofitability acrofitability acrofitability acrofitability across most Australian systems,oss most Australian systems,oss most Australian systems,oss most Australian systems,oss most Australian systems,which is in alignment with global trwhich is in alignment with global trwhich is in alignment with global trwhich is in alignment with global trwhich is in alignment with global trendsendsendsendsends

••••• TTTTTop whole farop whole farop whole farop whole farop whole farm prm prm prm prm profitability due to diversification and scaleofitability due to diversification and scaleofitability due to diversification and scaleofitability due to diversification and scaleofitability due to diversification and scale

Figure 24 Total costs of sheep meat production(US$/100kg lwt)



Australia

0

100

200

300

400

500

600

700

800

900

1,000

Germ

any 6

00

Germ

any 1

200

Sp

ain

800

Sp

ain

950

Sp

ain

1500

Fra

nce 4

70

Fra

nce 5

00

Fra

nce 7

50

Fra

nce 8

60

Irela

nd

230

UK

400

UK

450

UK

500

Mexic

o 3

00

Bra

zil 3

5B

razi

l 150

Uru

guay 6

00

Chin

a 2

70

Chin

a 3

40

NS

W 1

250

NS

W 1

600

NS

W 2

000

Vic

3000

WA

2000

WA

4800

WA

7800

NZ

3200

Alg

eria 3

00

Moro

cco 3

00

Tunis

ia 4

0N

am

ibia

1000

Nam

ibia

3000

S A

fric

a 8

50

S A

fric

a 1

500

S A

fric

a 1

800

Total capital cost Total land cost Total labour cost Non-factor costs

Total costs7 of meat production (US$/100kg lwt)Overall, Australian farms maintain a low total cost of meat production, with the exception of

AU-1600 (NE NSW, due to high land and non-factor costs). New Zealand, Uruguay and some

farms in China8, Namibia and South Africa also

maintain low total costs. In most countries,

50%-60% are the non-factor costs or the

operational costs of running the enterprise.

Feed, machinery and fuel represent the largest

non-factor costs in European and some South

African systems, with feed being the

predominant cost in MENA countries, and

animal purchases in China being the major

non-factor cost. It is quite mixed for all other

parts of the world.

7 Total costs include all allocated whole farm costs, as well as opportunity costs for labour (family labour), land and capital used. This representsa long-run cost of production. For capital, land and labour costs it includes opportunity costs of land, non-land assets and family labour.

8 In China, land cost is difficult to estimate due to farmers maintaining only the right of use for 30 years, whereas renting usually only occurs for12 months at a time.

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