Livestock Farm Monitor Project
The 2010-11 Livestock Farm Monitor Project summary of results are now available:
Introduction
The Livestock Farm Monitor Project analyses the performance of 110 livestock farming operations across Victoria. Profitability and production information at the whole farm and enterprise level is reported on. A total of 63 wool, 61 prime lamb and 69 beef cattle enterprises from across Gippsland, North East and South West Victoria have participated in this year’s project.
The Farm Monitor Project first began 41 years ago analysing farms around Hamilton in South West Victoria. This grew to comparing farm businesses throughout the South West. Seven years ago the Sheep Farm Monitor Project was developed to look at wool initially and then both wool and prime lamb production across Victoria. Last year the South West and Sheep Farm Monitor Projects were combined to report on livestock performance across the state. The same methodology and terminology has been used as in previous reports.
The Livestock Farm Monitor Project is a farm based comparative analysis study that aims to:
- monitor trends in farm production and profitability;
- provide benchmarks for livestock, and some cropping, enterprises in Gippsland, North East and South West Victoria;
- evaluate the differences between top performers and other farms;
- provide feedback to farm participants; and
- provide an historical dataset of farm comparative analysis information.
2010/11 Seasonal Conditions
Rainfall patterns across the state of Victoria for each region are shown in Figure 1. All three regions received considerably more rainfall compared to previous year’s totals. Spring was generally very wet across the state, especially in the South West, North East and south Gippsland. There was also considerable rainfall received in mid to late summer across the state, in particular in the North East. Rainfall received across participant farms in the South West averaged 960 millimetres, in the North East average rainfall was 1,093 millimetres and in Gippsland average rainfall was 917 millimetres. There was high variability in rainfall totals between participants in Gippsland, as shown in Figure 7 in the regional section of the report, due to the spread of project participants based in south and east Gippsland.Whole Farm State Analysis
Whole farm financial analysis is important for gauging the overall performance of the farming business. There was an improvement in farm business returns across all three regions. This was as a result of more favourable seasonal conditions, combined with an increase in sheep meat prices, wool prices and cattle prices and a general steadiness in expenditure.
Figure 1: 2010/11 Monthly Rainfall
| Jul | Aug | Sep | Oct | Nov | Dec | Jan | Feb | Mar | Apr | May | Jun | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Gippsland | 39.58 | 97.18 | 87.71 | 45.96 | 83.72 | 86.36 | 41.13 | 110.38 | 111.29 | 82.28 | 67.11 | 64.52 |
| North East | 69.65 | 123.02 | 124.84 | 91.11 | 119.81 | 111.33 | 132.62 | 146.53 | 47.46 | 39.97 | 37.36 | 76.24 |
| South West | 52.12 | 147.13 | 74.93 | 73.85 | 70.18 | 116.45 | 127.69 | 59.94 | 67.48 | 61.17 | 53.50 | 57.13 |
| 2009/10 Statewide Average | 68.37 | 78.55 | 44.80 | 74.02 | 61.73 | 34.12 | 28.37 | 67.88 | 66.82 | 56.46 | 49.23 | 57.09 |
Table 1 shows that, on average, participant farms across the state achieved a whole farm per effective hectare gross income of $661; which was up by $172 per effective hectare on the previous year. This was used to cover enterprise costs of $175, overhead costs of $136 and owner/ operator allowance of $107 per hectare. This gave an operating profit of $243 per hectare, which was double that of the previous year. The amount spent on enterprise costs per hectare decreased slightly and the amount spent on overheads and owner/operator allowance per hectare increased.
Figure 2 demonstrates the results of Table 1 in visual form. The violet colour represents gross income per hectare. From gross income red enterprise costs are subtracted to give a gold gross margin. From the gross margin navy blue overheads are deducted to give the light blue net income and then from this the dark green owner/operator allowance is subtracted to give a light green operating profit. The legend for Figure 2 and the values for each category can be found in Table 1.
Gross Farm Income
Gross income includes all farm income, for example, income from wool sales, lamb sales, an increase or decrease in inventories of stock or feed on hand, cash income from capital livestock sales, etc. The South West had an average gross income of $793 per effective hectare, while Gippsland and the North East had averages of $697 and $499 respectively. The gross incomes are consistent with the average stocking rates in each region. South West producers had an average stocking rate of 16 dry sheep equivalent (DSE) per grazed hectare, in Gippsland it was 15 and in the North East it was 9 DSE per grazed hectare.
| Farm Income and Cost Category |
Statewide |
Gippsland |
North East |
South West |
|---|---|---|---|---|
| Gross Income |
$661 |
$697 |
$499 |
$793 |
| Less: Enterprise Costs |
$175 |
$202 | $112 | $214 |
| Gross Margin |
$486 | $495 | $387 | $579 |
| Less: Overhead Costs |
$136 | $164 | $108 | $137 |
| Net Income |
$350 | $331 | $279 | $442 |
| Less: Owner/Operator Allowance |
$107 | $152 | $97 | $76 |
| Operating Profit |
$243 | $179 | $182 | $366 |
Figure 2: Average Farm Financial Performance Per Effective Hectare
Enterprise Costs
Enterprise costs are costs that are directly associated with production. Examples include animal health, supplementary feed and agistment and selling costs. These costs are driven by stocking rate and hence the South West had a higher amount of enterprise costs per hectare. Enterprise costs also make up the largest component of the cost category as shown in Figure 2. Looking at regional enterprise costs on a DSE basis shows that the South West had average enterprise costs of $13.50 per DSE, Gippsland $13.10 per DSE and the North East $11.90 per DSE. The South West and Gippsland had a decrease in enterprise costs per DSE and the North East had a slight increase as compared to last year.
Overhead Costs
Overhead costs or fixed costs are those costs that are not clearly linked to a specific enterprise and are incurred regardless of the level of production from an enterprise. They are generally unresponsive to small changes in the scale of operation of a business. Examples include depreciation, repairs and maintenance, fuel and vehicle costs and rates and rents. Overhead cost totals per hectare generally reflect the carrying capacities of each region. Gippsland, with the second highest stocking rate, had the highest overhead costs per hectare, followed by the South West and then the North East.
Owner/Operator Allowance
Owner/operator allowance is the cost of the owner/operator’s own labour. This is set at $53,508 per year, according to the agricultural award wage, and allocated pro rata according to actual time worked on farm in 2010/11. In addition an allowance of $35,682 per year is allocated pro rata to other unpaid family labour for their actual time worked on farm. Gippsland had the highest owner/operator allowance of $152 per effective hectare, followed by the North East with $97 and then the South West with $76 per effective hectare. This is a similar trend to the previous year.
Operating Profit
Operating profit is what money is left over before tax and interest and lease costs are paid. It is a good measure of the businesses whole farm operational efficiency. The South West had an operating profit of two times that of the North East, which is similar to the difference in stocking rate. Gippsland though had the lowest operating profit, but very close to that of the North East, and was a significant improvement on the previous year but well down relative to stocking rate, a reflection of the variability between east and south Gippsland producers.
Compared to the previous year whole farm profitability in the South West improved from $210 to $366 per effective hectare. In the North East it increased from $82 to $183 per effective hectare and in Gippsland it went from $59 to $178 per effective hectare. This improvement was as a result of higher income and overall reduced costs per effective hectare. The top 20% of producers (ranked according to operating profit per effective hectare) in the South West achieved an average operating profit of $576 per effective hectare, the top 20% in the North East achieved $402 and the top 20% in the Gippsland received $527 per effective hectare.
The Top 20%
For enterprise analysis the top 20% are ranked according to gross margin per hectare per 100 millimetres of rainfall and for whole farm performance comparisons the top 20% are ranked according to operating profit per hectare, unless otherwise stated. Refer to the footnotes in the appendix tables for the ranking criteria. The top 20% of producers generally farm at higher stocking rates. This was and remains a key driver of farm profitability. The top 20% of producers in the South West on average farmed 18 DSE per hectare, 12 in the North East, and 23 in Gippsland. While rainfall is important, given the high rainfall received across the state this was not a significant driver in 2010/11, although still very important, especially in east Gippsland. The top 20% also tended to, in some cases, receive higher prices and with their higher levels of production have lower costs of production on a kilogram of product produced basis. Enterprise mix also played a role in influencing whole farm profitability, as discussed later in the report.
Return On Assets
Operating profit relative to the total amount invested in assets in the business gives a return on assets and is a good indicator of the earning power of the assets. Figure 3 shows the return on assets for the average and top 20% of producers for each region. The average return on assets for Gippsland was 2.6%, the North East 4.5% and the South West 5.7%. The top 20% of farmers achieved average returns of 4.7%, 9.1% and 9.4% respectively. These results are in some instances a significant improvement
on the results of the previous year.
Enterprise Analysis
All enterprises had improvements, and in some cases very substantial, in their gross margin returns from that recorded in 2009/10. Across the South West the average gross margin for wool was $550 per hectare, for prime lamb $628 and for beef $538. In the North East average gross margins returns were $396 per hectare for wool, for prime lamb $401 and for beef $365. In Gippsland average gross margin returns were $327 per hectare for wool, $710 for prime lamb and $418 for beef. The top 20% of producers generated significantly higher gross margins across all enterprises in the three regions.
Figure 4 shows the gross margin returns per DSE for the group average and top 20% for each enterprise and each region. Taking stocking rate into consideration gives a more comparable view between enterprise performance among regions.
The main driver for the better returns was improvements in prices received. Sheep and lamb prices increased considerably and for the first half of 2011 wool prices also rose. Beef prices also increased. Prime lamb production tended to remain fairly steady across the state, with cost of production rising slightly, but being offset by the better prices. Wool production also played an important role in influencing the profitability of some prime lamb operations.
Wool enterprise production per hectare across the state increased, with cost of production on average tending to decrease. This with the higher prices has generated some considerable wool enterprise profits. Beef production across the state on average increased as to did the cost of production. However, the rise in beef price compensated for this. There was also a slight building of cattle numbers in the North East and South West, as shown by positive livestock inventory balances.
For in depth details on the performance of specific enterprises, regions, whole farm performance and the differences between the group average and top 20% refer to the relevant sections further on in the report.
Figure 3: Return On Assets
| Gippsland | Average | 2.55% |
|---|---|---|
| Top 20% | 4.69% | |
| North East | Average | 4.52% |
| Top 20% | 9.05% | |
| South West | Average | 5.73% |
| Top 20% | 9.37% |
Figure 4: Gross Margin Returns for Wool, Prime Lamb and Beef ($/DSE)
| GM per dse | ||||
|---|---|---|---|---|
| Gippsland | North East | South West | ||
| WOOL | Average | $34 | $44 | $37 |
| Top 20% | $45 | $54 | $45 | |
| PRIME LAMB | Average | $41 | $46 | $41 |
| Top 20% | $48 | $61 | $47 | |
| BEEF | Average | $24 | $31 | $32 |
| Top 20% | $34 | $48 | $52 | |
South West Victoria/Sheep & Wool Farm Monitor
South West Farm Monitor Project
This project provides financial and production analysis of 30 livestock farms from across south west Victoria. Since 2009-10 this specific project is no longer published as it has been merged to form part of the Livestock Farm Monitor Project.
This project provides financial and production analysis of wool sheep and prime lamb enterprises from across Victoria. Since 2009-10 this specific project is no longer published as it has been merged to form part of the Livestock Farm Monitor Project.
2009-2010 Livestock Farm Monitor Project Feature Article: Prices had the greatest influence on sheep income.
