How are global and Australian beef and sheepmeat producers performing?

Transcription

1 Red Meat Market Report How are global and n beef and sheepmeat producers performing? GLOBAL AGRI BENCHMARK NETWORK RESULTS 214 Written by Karl Behrendt (Charles Sturt University) and Peter Weeks (Weeks Consulting Services) Commissioned by Meat & Livestock Vietnam market update MLA s Market Information Service November 214 marketinfo@mla.com.au

2 HIGHLIGHTS Beef cattle Global beef prices are generally on the rise, driven by growing demand (especially for beef in China) and constraints on supply (especially feed, land, water and environment) Given the recent lift in global markets, n cattle prices have significant upside potential, once the drought breaks and the A$ falls Few countries can boast long-term profitability in beef cattle production at present, though higher beef prices improved results for most in 213 Hence, there are few signs of any substantial reinvestment in beef by major world producers and exporters at this stage While globally cow-calf enterprises were generally profitable in 213, cattle finishing was not Typical n beef cattle farms were mostly profitable on a short-and medium-term basis in 213, but not long-term given s relatively high opportunity costs of land, capital (interest) and labour has moderate to low calf weaning rates and cow herd productivity, compared with similar systems achieves moderate to high weight gains in southern farming systems and feedlots, but low gains in extensive northern systems (affected by drought in 213) Overall, remains an efficient cattle and beef producer, with a moderate cost of production s cost of beef cattle production has risen relative to competitors in North and South America in recent years, due to a relatively high A$, high labour, land and interest (capital) costs and drought-related expenses Overall, the 214 agri benchmark results confirm the tough time n beef producers faced in 213, due in part to a second year of widespread severe drought, rising costs and a high A$. However, the stronger global results suggest a promise of better times for n beef producers from 215, especially if the drought breaks and the A$ falls. The results also suggest the potential for productivity gains generally, which no doubt are much larger for many of the poorer performing farms. 2

3 Sheepmeat Sheepmeat prices remain 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 213, assisted by income from other enterprises, especially cropping (particularly in ) and cattle (particularly in Europe) On a whole farm basis, n sheep farms are the most profitable (in absolute US$ terms), due to the larger size and crop incomes Profitability in WA was particularly high in 213, following an excellent cropping and lambing season Even without counting the income from other sources, sheep flock incomes were long-term profitable in, New Zealand and Uruguay (and on some typical farms in China and Africa) in 213 n sheep farms have relatively low losses, mortalities and wastage n farms achieve moderate to high meat production efficiency Sheep reproductive efficiency is moderate by international standards, with probable room for improvement remains one of the most efficient and low cost producers of sheepmeat 3

4 INTRODUCTION This 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 n 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-214, though farm data is for the 213 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 3 member countries, covering 9% of world beef production and 55% of sheepmeat production. 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. 1 See 4

5 Figure 1 Countries in the agri benchmark network Legend Participating countries 213 Contacts for further growth 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 12 th annual agri benchmark conference in Turin, Italy, 5-12 June 214. Table 1 agri benchmark network participants Countries Farms Cow-calf Beef finishing Sheep New members Paraguay, Botswana USA, China, Turkey Typical farms are farms engineered by local producers and experts to be typical of a country s main cattle or sheep production systems, using annual data drawn from farms in the key production regions. Canada 5

6 Table 3 n and New Zealand agri benchmark typical cattle farms n and New Zealand agri benchmark typical cattle farms AU18/65 (18 cows on farm/65 steers sold) Northern tablelands NSW; Angus + sheep + wool; pasture feed base AU2/85 Southern tablelands NSW; British breed; pasture feed base AU35/15 Western districts Vic.; Angus; pasture, hay, oaten grain feed base AU 36/155 Northern Territory, Bos indicus; live export; pasture, mineral supplements feed base AU56/415 South east Qld; Simmental X Droughtmaster; cattle + crops; pasture feed base AU6/54 Northern slopes NSW; Charolais X Angus; pasture, hay, sorghum feed base AU88/32 Central Qld; Bos indicus; pasture, mineral supplements feed base AU99/375 Central Qld, Bos indicus; cattle + crops; pasture, oats grazing feed base AU15K (15, cattle sold) South east Qld; British, Wagyu X; feedlot; concentrates, roughage NZ375 (375 bulls finished & sold) East coast North Island; pasture feed base Figure 2 Location of n typical cattle farms and beef cattle density AU-36/AU-155 DARWIN AU-32/AU-88 AU-375/AU-99 AU-15K BRISBANE AU-415/AU-56 PERTH AU-65/AU-18 SYDNEY AU-54/AU-6 Legend - cattle per sq km ADELAIDE CANBERRA > AU-15/AU-35 N , Kilometres MELBOURNE HOBART AU-85/AU-2 6

7 Table 4 n and New Zealand agri benchmark typical sheep farms AU125 (125 ewes) NSW slopes; Border Leicester X Merino, Dorset; sheep + crops AU16 NSW Northern Tablelands; Merino, Dorset Merino; sheep + wool + cattle AU2 NSW plains; Merino, Border Leicester; sheep + crops AU2WA WA low rainfall; Merino, Merino and Poll Dorset; sheep + crops AU3 Western Victoria; Coopworth X Dorset AU48 WA medium rainfall; Merino, Merino and Poll Dorset; sheep + crops AU78 WA high rainfall; Merino, Merino and Poll Dorset; sheep + crops NZ32 East coast North Island NZ; Romney; sheep + cattle Figure 3 Location of n typical sheep farms and sheep density DARWIN BRISBANE AU-48s WA PERTH AU-16s/AU-15s AU-48s SYDNEY AU-2s AU-78s Legend - sheep per sq km ADELAIDE CANBERRA AU-125s > AU-3s N , Kilometres MELBOURNE HOBART 7

8 GLOBAL PRICE AND COST TRENDS Meat prices Global beef prices are still rising, though more gradually than in the period. 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. Figure 4 FAO monthly meat price indices At the same time, beef production (indeed 5 Index based on US$/tonne swt prices (Jan 2 = 1) meat production generally) is being Poultry Pigmeat Beef Sheepmeat 4 increasingly constrained by scarcity of land (and shift of livestock from arable to more 3 marginal land), adverse weather events, 2 environmental policies, slowing productivity gains and historically high grain prices (both 1 as a meat production cost and competitor for * land). Source: FAO meat price indices * August In contrast to beef, prices for poultry and pork have been flat since 211 and sheepmeat prices have fallen from the high 211 peak (due, at least in part, to drought in and NZ). Beef cattle prices (in US$ terms) rose in all major countries in the 25 to 213 period, led by China (3.4 times), Argentina (1.5 times), Brazil (1.3 times), Indonesia (1.3 times), Uruguay (1.2 times), the UK (77%), Sweden (73%), Italy (71%) and Ireland (65%) with the South American rise explained in part by currency appreciation against the US$ (the Brazilian real depreciated 26% relative to the A$ between 28 and 213). Prices in the rest of the EU, Russia, the US and South Africa rose around 4%-5% over the same period. OECD-FAO (214 Outlook database) currently predict livestock prices to rise further over the coming decade, while crop prices fall initially then hold. 8

9 Beef production costs Beef production cost (in US$ terms) have increased appreciably in almost all countries (with South Africa a notable exception) over the past eight years, led by China, Brazil, Argentina and the USA (with 5% to 19% rises). Countries with much slower cost increases (1% to 3%) include, 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). Crop price rises since 25 have been even greater than for beef (even after accounting for the latest fall) and much more volatile. Figure 5a Global beef farm prices Less than US$5/kg cwt in Namibia Brazil S. Africa Ukraine Argentina Uruguay Poland Figure 5b Global beef farm prices Greater than US$5/kg cwt in Canada Czech R. Russia USA Uruguay 2 Germany Austria Spain France Sweden Ireland UK China Italy Indonesia Tunisia Figure 6 FAO monthly cereal, meat and food price indices Index based on US$/tonne swt prices (22-24 = 1) Cereals Price Index Meat Price Index Food Price Index * Source: FAO food price indices * August 9

10 GLOBAL PERFORMANCE OF BEEF FARMS Few countries can boast long-term profitability on cattle enterprises at present, even though beef prices have 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 2, only beef farms in Uruguay, China, Kazakhstan and Indonesia made a profit, without government payments, in 213. 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, Brazil, Argentina, Columbia and the Ukraine. While cow-calf enterprises 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. Pasture-based beef farm profitability In 213, with much of the north n cattle herd being affected by drought (depressing cattle prices for all producers), the typical n 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, but unprofitable in the medium- and long-term. This is a result shared with producers in South America, the only other continent with similar extensive combined cow/calf and finishing farms. Germany 2 Beef farm enterprise income refers to income attributed to the beef cattle component of a farm. Similarly, beef cow-calf enterprise income and beef finishing enterprise income refer to income specifically attributed to the beef cow-calf and beef finishing components of the farm (calculated separately, even when combined on the same farm, such as occurs in the typical n pasture farms). Whole farm income refers to the combined income from all enterprises undertaken on the farm, including for example cropping or sheep. 1

11 There was, however, a large variation in the performance of the n typical beef grazing farms, with the main determinants appearing to be drought severity and response and cost efficiency. Long-term losses were the worst on the agri benchmark farms with high costs and moderate production. Long-term profitability improves as farm turnoff increases and costs are kept relatively low. While the 213 agri benchmark profit results for n typical cattle farms have been mixed but generally weak, the variation in results points to the potential for profitability through further productivity gains an observation backed by surveys of the top and bottom Figure 7 Whole farm net profit margins combined performing farms (see ABARES Farm Financial cow/calf and finishing cattle enterprises 4 and Physical database 3 Profit as a % of gross income ). 8% While 214 profit results will probably also be adversely affected by the impact of the ongoing drought (and high A$) on local cattle prices and costs, there is considerable potential for rises in n farm prices and profitability from 215, given the strong global markets and a falling A$, and assuming the drought breaks. Feedlot profitability In 213, cattle feedlots generally performed better than in 212 around the world, due to some fall in feed costs and higher beef prices. However, profit results were still mixed. The typical US and Canadian feedlots were found to be operating at a loss or breakeven level, as were those analysed in South Africa, Spain and Mexico. The results for South American feedlots were mixed, with the majority achieving long-term profitability. Feedlot systems that were analysed in, China and Namibia were found to achieve long-term profitability levels in % 4% 2% % -2% -4% -6% -8% Arg 63/8 Arg 38/85 Arg 8/11 Uruguay 75/22 Brazil 4/12 Brazil 25/25 Columbia 35/22 Short-term (Cash) Medium-term (Cash - Depreciation) Long-term (Cash - Deprec. - Opp. Costs) Columbia 13/4 Aust 65/18 Aust 85/2 Aust 15/35 Aust 415/56 Aust 54/6 Aust 32/88 Aust 375/99 Aust 36/155 Farm identification numbers indicate cattle sold/number of breeding cows Figure 8 Short-, medium- and long-term net profit margins for beef feedlots Profit as % of gross income 5% Short-term (Cash) Medium-term (Cash - Depreciation) 4% Long-term (excluding gov. payments) 3% Long-term (Cash - Deprec. - Opp. Costs) 2% 1% % -1% -2% -3% -4% -5% Spain-43 Spain-52 Spain-55 Spain-52/1 Canada-28K US-72 US-75K Mexico-15 Arg-26K Arg-63/8 Brazil-68 Peru-17 China-94 China-2 Aust-15K S Africa-3 S Africa-75K Namibia-25K Farm identication is number of finished cattle 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 (including interest and family wages), medium-term profit allows additionally for depreciation, and long-term profit allows for the opportunity costs of land and other capital invested. Opportunity cost is calculated at a risk-free rate of return in each country, using the total value of assets involved in the business. 11

12 HOW EFFICIENT ARE AUSTRALIAN BEEF PRODUCERS? Cow-calf enterprises Stocking rates of cow-calf enterprises Northern n cow-calf systems have relatively low stocking rates, on a par with similar rangelands of Montana and Kansas (US), Alberta (Canada), and semi-kalahari bosveld (South Africa). However, southern s higher rainfall systems maintain high stocking rates, similar to the European and South American systems. Weaning rates (calves per 1 cows) The majority of the world s cow-calf systems tend to maintain similar reproductive rates at around or above 9 calves per 1 cows. However, north n systems maintain reproductive rates similar to comparable extensive tropical cattle systems in South America (Brazil) and South Africa, which range from 5 to 75 calves per 1 cows. Southern n 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. Total live weight produced per cow This ranges from 1-45 kgs globally (kg live weight (lwt) produced per cow per year) weaners are the main part, but not all. The performance of n systems is in the middle and is quite diverse, ranging from 2kg to 32kg lwt, with the exception of AU- 155 (northern NT live export) that is comparable to the cut & carry systems of Indonesia, and this could potentially be an area for significant improvement. Figure 9 Total kg live weight produced per cow Kg lwt produced per cow Adult cattle sold/going to finishing Calves sold/going to finishing Breeding animals Cull and slaughter animals Austria-3 France-8B Germany-11 Austria-25C UK-15 France-85 Germany-1 UK-1 UK-7 France-8 China-2 Aust-6 US-16B Germany-14 Aust-99 Aust-18 US-16A Canada-2A Germany-3 A Africa-4 US-5 Canada-2B Aust-2 Aust-35 Canada-8A Aust-88 S Africa-25 China-14 S Africa-35 Canada-8B Arg-8 S Africa-2 Uruguay-115 Aust-56 Arg-85 Russia-45 Arg-11 Brazil-12 Uruguay-22 Indo-2 Brazil-25 Indo-4 Aust-155 Indo-3 Farm identication is number of cows Weaner and cull cow prices Overall, n weaner prices are similar to those elsewhere in the pasture-based systems of the southern hemisphere (Argentina, Brazil, Uruguay and South Africa), which are around 35-5% lower than those in North America, Europe and Asia. Cull cow prices in tend to be similar to those of South America, North America and Africa, but are lower than those received in Europe and Asia. 12

13 Total cow-calf returns (revenue) In 213, had comparably low total revenue (returns) from cow-calf operations, due to a combination of lower weaner and cow prices and moderate production levels (weaning rates and production per cow). Countries in South America and Africa maintain similar returns, whereas the US, Canada, Asia and Europe maintain higher returns. European countries maintain significantly higher returns through government payments (both coupled and decoupled payments). Total cost of cow-calf production 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 costs 1 make up 4-5% of the total cost of production, and 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. Figure 1 Total cost of cow-calf production (US$ per 1kg live weight sold) US$ per 1kg live weight sold Austria 25C Austria 3 Germany 1 Germany 3 Germany 11 Germany 14 France 8B France 8 France 85 UK 7 UK 1 UK 15 Russia 45 Canada 2A Canada 2B Canada 8B Canada 8A US 16A US 16B US 5 Arg 8 Arg 85 Arg 11 Uruguay 22 Uruguay 115 Brazil 12 Brazil 25 Non-factor costs Total labour cost Total land cost Total capital cost China 2 China 14 Indo 2 Indo 3 Indo 4 Aust 18 Aust 2 Aust 35 Aust 56 Aust 6 Aust 88 Aust 99 Aust 155 S Africa 2 S Africa 25 S Africa 35 S Africa 4 Farm identication is number of cows 5 Non-factor costs include all the operating costs of the enterprise, both variable and allocated fixed costs. 13

14 Total costs, returns and profitability of cow-calf production in 213 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). Two of s eight pasture-based farms made a long-run profit from the cow-calf portion of their operations in 213, with the other six covering cash costs, depreciation and the majority of their opportunity costs. This would have been adversely affected by drought, Figure 11 Costs, returns and profitability of cow-calf production 213 (US$ per 1kg live weight sold) which directly impacted the five typical US$ per 1kg live weight sold 8 farms in northern NSW, Queensland and the Opportunity cost Depreciation Cash cost Cow/Calf returns Cow/Calf returns + government payments NT, and indirectly impacted all farms through the resultant lower cattle prices Generally, European systems are only capable of maintaining short-run profits through the additional income provided by government payments (coupled payments), Profit but still do not cover opportunity costs, with 1 the exception of France in 213. Austria 25C Austria 31 Germany 1 Germany 3 Germany 11 Germany 14 France 8B France 8 France 85 UK 7 UK 1 UK 15 Russia 449 Canada 2A Canada 2B Canada 8B Canada 8A US 16A US 16B US 51 Arg 8 Arg 85 Arg 11 Uruguay 22 Uruguay 115 Brazil 12 Brazil 25 China 2 China 14 Indo 2 Indo 3 Indo 4 Aust 18 Aust 2 Aust 35 Aust 56 Aust 6 Aust 88 Aust 99 Aust 155 S Africa 2 S Africa 25 S Africa 35 S Africa 4 In comparison n cow-calf systems have: More e diversified whole farm m systems (maintaining both cow-calf and finishing systems within the same business) Moderate-to-low weaning rates and moderate-to-low productivity per cow,, especially in norther thern n systems Lower revenues due to both lower weaner and cull cow prices Maintain some of the lowest cost cow-calf systems in the world Good short-, t-, medium- and long-term m profitability High labour productivity (kg lwt produced per hour of labour input) to compensate for high wage rates (although in some countries cost of wages are e beginning to rise to n levels) 14

15 Cattle finishing enterprises There was some improvement in beef cattle farm finishing enterprise incomes in 213 across almost all countries. While beef finishing farms in almost all countries made short-term (cash) profits in 213 (one exception being eastern n 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 (6-7kg finished live weight) with very low comparable starting weights (~ 1kg lwt). These cattle come from dairy herds and are either Holstein or dual purpose breeds, like Fleckvieh. n systems are similar to North American and UK systems, which have similar total weight gains in finishing (4-6kg finished live weight) and similar entry weights (2-3kg lwt). South American systems tend to be in-between (15-2kg lwt at entry with around a 5kg 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 n and South American systems on pastures are characterized by long finishing periods of 5-1 days. Figure 12 Change in live weight (kg) and finishing period (days) Change in kg lwt during finishing Cut & Carry Indo 4 Indo 2 Feedlots China 94 China 2 Arg 63 Arg 26K US 72 Canada 28K S Africa 75K US 75K S Africa 3 Brazil 68 Aust 15K Pasture systems Aust 36 Uruguay 75 Brazil 4 Aust 32 Brazil 36 Aust 15 Brazil 6 Aust 375 Aust 415 Brazil 8 Brazil 175 Indo 1 Arg 38 Arg 8 Aust 85 UK 8 NZ 375 Aust 65 Aust 54 Silage systems UK 45 UK 9 UK 75 Germany 285 Germany 8 Russia 64 Germany 28 China 3 China 15 France 7 Germany 26 Germany 525T Austria 35 Austria 12 China 7 France 2 Austria 175T France 6 Farm identication is number of finished cattle sold UK 15

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. The typical n feedlot chosen ranked 1 st (AU-15k, SE Qld) on a daily weight gain basis in 213, exceeding feedlots in the US, Brazil, South Africa, Canada, Argentina and China. Notably, around half of the European silage based systems achieved similar or higher weight gains than the lowest performing feedlots, from China and Argentina. Figure 13 Daily Live weight gain (grams/day) Grams lwt / day Our pasture based systems had very mixed 2 18 results for 213, as our best pasture based Feedlots Pasture systems Silage systems systems rank 1 st (AU-54, NW NSW), 2 nd 16 (AU , NSW northern tablelands), and 5 th (AU-85, 12 NSW southern tablelands) when compared to 1 8 other pasture systems on daily weight gain. 6 Due to drought conditions, the northern 4 n systems recorded some of the 2 lowest weight gains. Comparison of beef prices in 213 Cut & Carry Indo 4 Indo 2 China 94 China 2 Arg 63 Arg 26K US 72 Canada 28K S Africa 75K US 75K S Africa 3 Brazil 68 Aust 15K Aust 36 Uruguay 75 Brazil 4 Aust 32 Brazil 36 Aust 15 Brazil 6 Aust 375 Aust 415 Brazil 8 Brazil 175 Indo 1 Arg 38 Arg 8 Aust 85 UK 8 NZ 375 Aist 65 Aust 54 UK 45 UK 9 UK 75 Germany 285 Germany 8 Russia 64 Germany 28 China 3 China 15 France 7 Germany 26 Austria 35 Austria 12 China 7 France 2 Austria 175T Italy 91 France 6 Farm identication is number of finished cattle sold Beef carcass prices generally ranged between US$3 and US$6/1kg lwt across the globe in 213, with the exception of closed or protected markets (through both tariff and non-tariff trade barriers), such as China and Indonesia, which experienced substantial increases in beef prices. European beef prices increased marginally from 212 and are relatively consistent internally and higher than southern hemisphere and North American prices (maintained by import barriers). n, southern African and South American pasture-based systems receive some of the lowest prices (reflecting lower costs and, in s case, drought), which were lower than those received in 212. Figure beef prices received (US$/1kg lwt sold) USD / 1 kg CW sold Austria Germany France Spain Italy UK Ireland Sweden Poland Czech Ukraine Russia Canada USA Mexico Argentina Uruguay Brazil Columbia Peru China Indonesia 212 Beef price 213 Beef price Nth NSW-65 Sth NSW-85 Vic-15 Central Qld-32 NT-36 Central Qld-375 SE Qld-415 Nth NSW-54 SE Qld-15K NZ-375 Morocco Tunisia S Africa Farm identication is number of finished cattle sold 16

17 Costs of finishing The high A$ and the drought have generally raised the cost of n beef production in recent years, in US$ terms, relative to farms in North America, South America and Europe. Generally, the lowest cost finishing systems exist in North America and South America. For the majority of the world s finishing systems it costs around US$1.6-$6 per kg live weight sold in 213. The lowest cost finishing systems exist in South Africa, NZ, and Brazil. AU-15K (SE Qld feedlot), AU-36 (Northern Territory) and AU-375 (Central Qld) maintain comparably low costs (similar to South America and the US), whereas the other n systems are comparable to the lower cost European finishing systems. The highest cost systems now occur in Europe (Germany and UK) and Asia (China and Indonesia). Total costs and farm rankings Feedlot and pasture based finishing systems tend to have lower costs than silage systems. Non-factor costs dominate in each finishing system (of which 4-6% is the cost of transferred/purchased livestock), although land, capital and labour contribute more significantly within pasture and silage systems per unit of output. Figure 15 Total average long-run cost of production (US$/1kg liveweight sold) US$/1kg liveweight sold 12 Non-factor costs incl. depreciation Total labour cost Total land cost Total capital cost Cut & Carry Feedlots Pasture systems Silage systems The n systems, whether feedlot or pasture based systems, had a comparably high total cost of finishing (in US$) in 213, recently elevated by the high A$ and livestock (weaner) prices. Indo 4 Indo 2 S Africa 75K S Africa 3 Brazil 68 Arg 26K Aust 18K Arg 63 US 75K US 72 Canada 28K China 2 China 94 NZ 375 Aust 36 Brazil 175 Brazil 4 Brazil 36 Brazil 8 Uruguay 75 Aust 375 Arg 38 Arg 8 Brazil 6 Aust 54 Indo 1 Aust 15 Aust 85 Aust 65 Aust 32 Aust 415 UK 8 Germany 285 China 3 UK 9 Russia 64 Germany 28 France 2 Austria 175T Germany 26 China 15 China 7 UK 75 France 6 Austria 12 Austria 35 France 7 UK 45 Germany 8 Farm identification numbers indicate finished cattle sold 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 213 (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. Figure 16 Cattle finishing costs, returns and profitability in 213 (US$/1 lwt) US$ / 1 kg cwt sold Austria-35 Austria-12 Germany-26 Germany-28 Germany-285 Germany-8 France-6 France-7 France-2 Italy-91 Italy-266T UK-45 UK-8 UK-9 UK-75 Russia-64 Canada-28K Opportunity cost Depreciation Cash cost Beef returns Beef returns + government payments US-72 US-75K Arg-38 Arg-63 Arg-8 Arg-26K Uruguay-75 Brazil-6 Brazil-36 Brazil-4 Brazil-68 Brazil-8 Brazil-175 China-7 China-3 China-94 China-2 China-15 Profit Indo-2 Indo-4 Indo-1 Aust-65 Aust-85 Aust-15 Aust-32 Aust-36 Aust-375 Aust-415 Aust-54 Aust-15K NZ-375 S Africa-3 S Africa-75K Farm identication is number of finished cattle sold 17

18 Operating losses on cattle finishing were made in the US, Canada and around half of the European systems. The notable exceptions were in China, NZ and Indonesia. In China and Indonesia, although costs have increased rapidly, so have finished cattle returns over the last 12 months. Only four of the eight n pasture-based farms covered short-term cash costs in 213, due in part to the impacts of drought and lower cattle prices, and no farms covered total costs, with the exception of the n feedlot. n systems, although maintaining relatively low cash costs of production, have high opportunity costs (mainly family labour and land). The n feedlot made a long-term profit, in contrast to its counterparts in the US, Canada, Brazil, Argentina and South Africa. It is also noticeable, that in Europe even with the remaining low levels of government payments (coupled payments), cattle finishing systems did not produce a profit, unlike cowcalf systems (which received higher levels of government payments). In comparison n cattle finishing systems have: Moderate to high weight gains in feedlot and southern n cattle systems, but low weight gains in norther thern n cattle systems, partly tly due to drought. Received below average prices when compared ed to other countries, again reflecting the impact of drought on supply and the high A$. Low to moderate costs of production when ranked against most pasture, e, feedlot and silage beef finishing systems having risen relative to South and North th American competitors in recent years (in US$ terms), mainly due to currency movements. Returns ns that do not, generally,, cover the long-term m costs of operation in keeping with most beef finishing systems around the world. Profits shifting between finishing and cow-calf systems, depending on weaner prices/values. High labour and land opportunity costs, which tend not to be covered ed by beef retur eturns. 18

19 SIGNS OF NEW INVESTMENT IN BEEF CATTLE FARMS The lack of long-term profitability, together with other intelligence, suggests that new investment in beef production in the big beef exporters of South America, North America and is likely to remain low in the short-term. There are tentative signs of cattle herd rebuilding in North America, China and Brazil, but few signs elsewhere (with falls in and Argentina) and the latest EU CAP reforms (especially reduced single farm payments in favour of per hectare and green payments) seem likely to continue the long-term reduction in EU cattle herds and production (partly offset by a likely rise in dairy bulls, following the abolition of EU milk quotas in 215). The lack of consistent long-term profitability, higher returns to cropping (despite recent grain price declines) and continued climate volatility in many countries (especially drought) seem likely to keep global beef supply response to the latest beef and cattle price rises modest. Argentina 19

20 GLOBAL PERFORMANCE OF SHEEP FARMS Global 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 countries) 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 (especially wool and crops), as well as increasing environmental constraints (most noticeably in China). Hence, sheepmeat prices have risen appreciably in the past 2 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 8% of traded product comes from only two suppliers, and New Zealand. This means that whenever global supply has fallen, or even failed to expand, especially in and New Zealand, sheepmeat prices have quickly jumped to a new level. The latest peak was the most dramatic of all, reaching highs in 211 following simultaneous supply falls in and New Zealand. Sheepmeat prices settled back in 212 and 213, as simultaneous droughts in and New Zealand saw supply rise on world markets. Now prices are again on the rise as the recent fall in Oceania flocks is reflected in lambs available and sheepmeat production and as China enters the market as a major importer, following years of stagnant sheepmeat supply and record internal prices. 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. Whole farm profitability ( US$) All but 3 of the 35 typical farming systems covered globally (in 16 countries) managed to make a profit at the whole farm level in 213, although this is partly dependent on other enterprises or non-farm returns (coupled and non-coupled government payments). On a whole farm profit basis (medium-term profitability), s typical sheep farms were the most profitable (in US$ terms), in part due to their sheer size and crop incomes. Two of the WA farms, AU-48 and AU78, were the most profitable globally, followed by the NZ farm and AU-2 (central NSW). 2

21 n sheep farms generally maintain higher levels of profitability due to the diversification of the typical mixed farming systems and their scale. In 213, cropping returns were generally above average due to both favourable prices and yields, especially in the WA systems. On average, European farms achieved a net profit margin of -63% without government payments, but with government payments achieved an average net profit margin of 21%, whereas n farms averaged 3%. Sheep flock costs, returns and profitability (US$/1kg lwt) When the 213 profitability of the sheep flock is examined, without taking into account income from other enterprises on the same farm or government payments, the global financial performance is still positive but not as good as it is at a whole farm level. Figure 17 Whole sheep farm profitability ( US$) US$ ' per farm 2 Total cost from P&L account 18 Market returns 16 Market returns + coupled + decoupled payments Germany 6 Germany 12 Spain 8 Spain 93 Spain 15 France 47 France 5 France 75 France 86 Ireland 23 UK 4 UK 45 UK 5 Mexico 3 Brazil 35 Brazil 15 Uruguay 6 China 27 China 34 Profit NSW 125 NSW 16 NSW 2 Vic 3 WA 2 WA 48 WA 78 NZ 32 Algeria 3 Morocco 3 Tunisia 4 Namibia-1 Namibia-24 S Africa-85 S Africa-15 S Africa-18 Farm identication is number of ewes Figure 18 Flock costs, returns and profitability (US$/1kg lwt) US$ / 1 kg liveweight 1 Opportunity cost Depreciation Cash cost Total returns Germany 6 Germany 12 Spain 8 Spain 93 Spain 15 France 47 France 5 France 75 France 86 Ireland 23 UK 4 UK 45 UK 5 Mexico 3 Brazil 35 Brazil 15 Uruguay 6 China 27 China 34 NSW 125 NSW 16 NSW 2 Vic 3 WA 2 WA 48 WA 78 Profit NZ 32 Algeria 3 Morocco 3 Tunisia 4 Namibia 1 Namibia 24 S Africa 85 S Africa 15 S Africa 18 Farm identification numbers represent number of ewes Many countries, even with significant government payments (excludes de-coupled payments), are not profitable in the long- term. The exception to this is, Uruguay, New Zealand and some systems in China and Africa. The profitability of sheep flocks in many other parts of the world was similar to that of 212, where total returns failed to or only just covered shortterm cash costs, even though total revenues had risen. In 213, all of the typical sheep flocks analysed in covered short- and medium-term costs (includes depreciation), with three of them (AU-2, AU-48 and AU-78) covering long-term costs (opportunity costs), with the remainder contributing to, but not fully covering opportunity costs. New Zealand 21

22 HOW EFFICIENT ARE AUSTRALIAN SHEEPMEAT PRODUCERS? Total returns (US$/1kg lwt) n sheep systems are diversified in comparison to the rest of the world, with wool and cropping being major sources of additional income. The majority of n systems are in mixed farming zones, which also represent areas of highest sheep production and flock sizes. Wool income is only a significant contributor to income in, NZ, China, Uruguay and South Africa systems. Other countries, like the UK, NZ and Uruguay, also commonly maintain diversification with cattle enterprises. n and NZ typical sheep farms are the largest by global standards, having from 2 to 8 times higher total returns (revenue) from the business. There is large global variation in total returns (revenue) per 1kg lwt sold. Countries like Germany, Spain, Ireland and France (EU countries) receive significant amounts of government payments. These are either Whole Farm Payments (Germany, Ireland), Livestock Payments (France FR-47, Spain ES-15) or a combination of the two. In, some of the eastern typical farms had reduced returns in comparison to 212, reflecting drought, whereas generally the western typical farms had increased sheep enterprise returns, under favourable seasonal conditions. For the n Merino based typical farms (AU-16, AU-2WA, AU-48 and AU-78) wool returns made up over 5% of total sheep flock returns, which is only matched by two of the South African farms. Total liveweight sold per ewe (kg lwt per ewe) 6 Figure 19 Total sheep enterprise returns (US$/1kg lwt) US$ / 1 kg liveweight 1 Government payments Breeding livestock receipts 9 Other returns Cull receipts Wool and skin market receipts Slaughter animals receipts 8 Weaned lamb and transfer to lamb finishing receipts Generally n systems produce above average kilograms of meat (live weight) per ewe, with the exception of AU-16 which is predominantly based on a fine wool Merino flock. The highest production per ewe came from the two dedicated lamb producing flocks, AU-125 and AU-3, which are comparable to the highest meat producing flocks in Europe Germany 6 Germany 12 Spain 8 Spain 93 Spain 15 France 47 France 5 France 75 France 86 Ireland 23 UK 4 UK 45 UK 5 Mexico 3 Brazil 35 Brazil 15 Uruguay 6 China 27 China 34 NSW 125 NSW 16 NSW 2 Vic 3 WA 2 WA 48 WA 78 Farm identification numbers represent number of ewes NZ 32 Algeria 3 Morocco 3 Tunisia 4 Namibia 1 Namibia 24 S Africa 85 S Africa 15 S Africa 18 6 Total live weight sold per ewe is generally dominated by the sale of slaughter lambs in most production systems, although a few exceptions exist where there are well established finishing systems (UK, Algeria and Tunisia). 22

23 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, and NZ. Very high land productivity occurs in systems in Mexico and Tunisia, where animals are housed. Comparatively, n 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. Figure 2 Total liveweight sold per ewe (kg) Total live weight sold per ewe (kg) Germany 6 Germany 12 Spain 8 Spain 93 Spain 15 France 47 France 5 France 75 France 86 Ireland 23 UK 4 UK 45 UK 5 Mexico 3 Brazil 35 Brazil 15 Uruguay 6 China 27 China 34 NSW 125 NSW 16 NSW 2 Vic 3 WA 2 WA 48 WA 78 NZ 32 Adults sold/going to finishing Lambs sold/going to finishing Breeding animals Cull animals Slaughter lambs Algeria 3 Morocco 3 Tunisia 4 Namibia 1 Namibia 24 S Africa 85 S Africa 15 S Africa 18 Farm identification numbers represent number of ewes Losses of ewes (annual) and lambs (birth to weaning) 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 n systems maintaining ewe and lamb losses at around 6% or less. Weaned lambs per 1 ewes per year European farms tend to have higher weaning rates than n farms, primarily due to more prolific breeds in addition to nutrition (supplementary feeding), or multiple lambings as occurs in France. n 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 n production systems, depending on the costeffectiveness of increasing weaning rates, although flocks from higher rainfall regions (AU- 125 in central NSW and AU-3 in western Vic) achieve comparable weaning rates to the representative European and NZ systems. Figure 21 Weaned lambs per 1 ewes per year Weaned lambs per 1 ewes per year Germany 6 Germany 12 Spain 8 Spain 93 Spain 15 France 47 France 5 France 75 France 86 Ireland 23 UK 4 UK 45 UK 5 Mexico 3 Brazil 35 Brazil 15 Uruguay 6 China 27 China 34 NSW 125 NSW 16 NSW 2 Vic 3 WA 2 WA 48 WA 78 NZ 32 Algeria 3 Morocco 3 Tunisia 4 Namibia 1 Namibia 24 S Africa 85 S Africa 15 S Africa 18 Farm identification numbers represent number of ewes 23

24 Lamb growth rates birth to weaning and/or slaughter (grams lwt/day) Lamb growth rates on typical n farms varied significantly, though n 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), n 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). Overall, mean global weaning age was around 9-15 days, with values ranging from 45-6 in Spain and Mexico (due to very light slaughter weight markets) and Algeria (due to lamb finishing systems); and up to 18 days in Germany (due to on-farm lamb finishing) and Namibia (nutritional and management constraints). Figure 22 Lamb growth rates for store and slaughter lambs: from birth to weaning or slaughter (g lwt/day) Store lambs - birth to weaning Slaughtered at weaning - birth to slaughter grams per day Slaughtered later - birth to slaughter Germany 6 Germany 12 Spain 8 Spain 93 Spain 15 France 47 France 5 France 75 France 86 Ireland 23 UK 4 UK 45 UK 5 Mexico 3 Brazil 35 Brazil 15 Uruguay 6 China 27 China 34 NSW 125 NSW 16 NSW 2 Vic 3 WA 2 WA 48 WA 78 NZ 32 Algeria 3 Morocco 3 Tunisia 4 Farm identification numbers represent number of ewes Cash and total costs 7 of meat production (US$/ 1kg lwt) It is noticeable that many countries have well over US$2/kg lwt cash costs. n systems are well represented in the <US$2/kg lwt category to cover cash costs (with the exception of AU-16), whereas, of all the farms covered globally, only one n and South African farm, Uruguay and NZ have total costs <US$2/kg lwt. The changes in total costs of sheep meat production across the world from 212 to 213 were mixed. Costs fell in (average across farms of an 8% reduction) and Africa (12%); and reduced marginally in the America s and NZ (2%), whereas in Europe 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. In, a large proportion of the costs of drought conditions in some of the eastern systems during the latter part of 213 are expected to be incurred again in The cash or non-factor costs represent largely variable costs directly associated with the enterprise. Feed and machinery are the dominant nonfactor costs in Europe, with feed costs predominating everywhere else, except AU, NZ, CN UY and NA. Other inputs to ewe enterprises are directly allocated cash costs, such as enterprise specific wages (shearing, marking etc), and these represent major costs to n systems. Animal purchase costs are also important in AU-125 due to being a non-self-replacing system (i.e. buys replacement ewes). Total long-run costs allow for depreciation and opportunity costs (including labour, land and capital). 24

25 The significant outlier to the changes in costs of production is China, where the total costs of sheep production have risen by 2% in the last 12 months, primarily due to increased costs of labour with hourly labour costs doubling, albeit from a very low level. Total costs 8 of meat production (US$/1kg lwt) Overall, n farms maintain a low total cost of meat production, with the exception of AU-16 (NE NSW, due to high land and nonfactor costs). New Zealand, Uruguay and some farms in China 9, Namibia and South Africa also maintain low total costs. In most countries, 5%-6% are the non-factor costs or the operational costs of running the enterprise. Feed, machinery and fuel represent the largest non-factor costs in European and some South African systems, with feed being the predominant cost in MENA countries, and animal purchases in China being the major non-factor cost. It is quite mixed for all other parts of the world. Figure 23 Cash and total long-run costs of sheepmeat production (US$/1kg US$ / 1 kg liveweight 1 Total costs Cash costs Uruguay-6 NZ-32 S Africa-18 Namibia-3 Aust WA-48 Aust Vic-3 Aust WA-78 Aust NSW-125 Namibia-1 Brazil-15 Aust WA-2 China-34 Aust NSW-2 S Africa-15 UK-5 Mexico-3 UK-45 Ireland-23 Aust NSW-16 France-75 France-47 China-27 France-86 Algeria-3 S Africa-85 Spain-15 UK-4 France-5 Spain-8 Tunisia-4 Spain-93 Germany-12 Germany-6 Brazil-35 Morocco-3 Figure 24 Total costs of sheep meat production (US$/1kg lwt) US$ / 1 kg liveweight Germany 6 Germany 12 Spain 8 Spain 93 Spain 15 France 47 France 5 France 75 France 86 Ireland 23 UK 4 UK 45 UK 5 Mexico 3 Brazil 35 Brazil 15 Uruguay 6 China 27 China 34 Total capital cost Total land cost Total labour cost Non-factor costs NSW 125 NSW 16 NSW 2 Vic 3 WA 2 WA 48 WA 78 NZ 32 Algeria 3 Morocco 3 Tunisia 4 Namibia 1 Namibia 24 S Africa 85 S Africa 15 S Africa 18 Spain 8 Total costs include all allocated whole farm costs, as well as opportunity costs for labour (family labour), land and capital used. This represents a long-run cost of production. For capital, land and labour costs it includes opportunity costs of land, non-land assets and family labour (opportunity costs are calculated using a risk-free rate of return). 9 In China, land cost is difficult to estimate due to farmers maintaining only the right of use for 3 years, whereas renting usually only occurs for 12 months at a time. 25

26 In comparison n sheep systems have: Low losses, mortalities and wastage in the system Moderate to high meat production efficiency ficiency Moderate repr eproductive efficiency ficiency - with potential for further improvement through nutritional management and genetics - if economic to do so Above average growth rates pre e weaning, but post-weaning about average High labour costs, but maintain excellent labour productivity Comparably low sheep costs of production Good sheep enterprise profitability Top op whole farm m profitability due to diversification and scale China Meat & Livestock Limited, 214. ABN MLA makes no representations as to the accuracy of any information or advice contained in this publication and excludes all liability, whether in contract, tort (including negligence or breach of statutory duty) or otherwise as a result of reliance by any person on such information or advice. Free to MLA members For further information please call toll free or or fax