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Top 4 Profit Drivers for Prime Lamb Enterprises

10 October 2018

The average cash income of Australian lamb-producing farms was projected to be 25% higher in 2016-17. That average, up to $265,000 per farm, was the highest in over 20 years.

However, it is important to note that there is a large gap between profits earned by the top 20% of prime lamb enterprises and the average lamb-producing operation.

There are (prime lamb) producers out there making 2½ times the profit of the average of all benchmarking participants.
Sandy McEachern
Principal Consultant, Holmes Sackett & Associates

To understand why, we’ll delve into:

  • Important profit drivers for prime lamb enterprises 
  • Key benchmarks that prime lamb producers should aim for
  • Additional tips around optimising meat (and wool) production
Sheep on a green hill

What are the profit drivers for prime lamb enterprises?

Every lamb enterprise is a little unique in that it has different business objectives, operational goals, risk constraints, available resources, and seasonalities. This makes the goal of profit maximisation challenging, especially for prime lamb producers looking to capitalise on the increasing demand.

The 2015-16 Benchmarking dataset by Holmes Sackett shows that the top 20% of prime lamb enterprises achieve an average profit of $25/DSE which is 150% more than the average enterprise.

Source: MLA & Holmes Sackett 2017
NOTE: DSE stands for dry sheep equivalent and is the standard metric unit used to compare feed requirements, or the carrying capacity and potential productivity of a given farm

While producers may attribute the higher DSE profitability to seasonality and sale price, analysis shows that the income per DSE generated by high and low profit enterprises under similar seasonal conditions and market constraints differ between 50 to 70%.

This is a positive signal to producers, indicating that there are profitability drivers that can be managed and subsequently optimised to increase farm productivity and profitability.

Top Drivers for Prime Lamb Enterprise Profitability:

  • Stocking rate
  • Lamb output rate
  • Growth rate
  • Cost of production
Sheep Farming at Wirrealpa Station in South Australia

What does it take to be in the Top 20% of profitable prime lamb enterprises?

One of the most common ways for prime lamb producers to assess and optimise their performance against similar farms, is to rely on industry benchmarks. Good benchmarking services apply a standardised methodology to assess a large group of participants. Producers who opt-in provide key performance indicators within a specified time frame, and gain the ability to objectively evaluate their enterprise against other comparable farms.

Looking at the analyses of the Top 20% most profitable prime lamb enterprises, producers looking to optimise their enterprise should set the following targets for the aforementioned profit drivers.

Profit DriverMetricTarget KPI
Stocking RateNumber of Ewes joined per hectare1 ewe joined/hectare/100mm of rainfall
Lamb Output RateKilograms of lamb (dressed weight) sold per ewe joined24kg/ewe joined
Growth rateGrams per day of weight gain250g/day to sale
Cost of ProductionTotal dollars spent per kilogram of lamb sold$78/ewe joined

The target benchmarks above are accurate and serve as guidelines for prime lamb enterprises. Producers can strive to achieve real-world results that are as close to the above as possible.

The Benchmarks above, however, will be a challenge for prime lamb farms in certain regions or for those who operate under autumn or spring lambing programmes.

While there are ways to manage those programmes, and potentially achieve the listed Benchmarks, the recommended best practice for producers will be to continue focusing on what produces the most kilograms per hectare.

Lamb feeding in the paddcok

Actionable Tips for Prime Lamb Enterprise Profitability

  1. Prioritise Growth Rate over Weaning Percentages
    • To maximise profit levels, a consistent weaning rate of 120% will suffice
    • However, weiner growth rates have a far greater impact on prime lamb profitability
  2. Optimise the four profit drivers above towards the relevant benchmark targets
    • While the Sale Price directly influences bottom line profits, it is highly dependent on the farm’s efficiency
    • To ensure consistency of profit margins, prime lamb producers are better off focusing on achieving the benchmark targets above
  3. Ensure that your Cost of Production is comprehensive and easily trackable
    Prime lamb Cost of Production reports need to account for the following sections:
    • Labour
      • Non-Capital Labour, eg: Shearing, Crutching and Marking
      • General Administration
      • Pasture Maintenance
      • Monitoring
      • Repairs and Maintenance
    • Animal Health
    • Cost of Sale
    • Other Overheads
  4. Keep detailed birth, weight, and purchase records across key lifecycle dates
Image of Brian Ritchie, Head of Growth at AgriWebb

Brian Ritchie

Head of Growth at AgriWebb

I had a lot of fun researching this piece, particularly because it opened my mind up to the numerous aspects a producer can focus on when thinking about optimising prime lamb farm profitability. Sandy’s write up on Holmes Sackett’s Benchmarking dataset served as a solid foundation layered with the variety of research and results published by the Department of Agriculture and Water Resources – Australia. Judging from its breadth, I haven’t even scratched the surface – so, do look forward to more write-ups as we continue to explore the topic of farm profitability in-depth.