Sheep stocks are blue-chip

High-performing dual-purpose sheep have been likened to blue-chip stocks by Australian Wool Innovation research general managerPaul Swan.

Speaking at the 2016 AAAC Outlook conference last week, Dr Swan highlighted reasons behind the strong profitability in recent years, and why future high returns could be expected.

He said growing demand for protein — particularly from the rising affluent population in China, coupled with alternative land uses, would cap sheep numbers and ensure tight supply.

In 1990 there were about five people on the planet per sheep, compared to seven people per sheep nowadays.

Dr Swan said in 2050 there would be about nine people in the world per sheep.

He said there were 71 million sheep in Australia and even optimistic projections indicated there would be only around 80 million sheep by 2030.

Meanwhile, wool production levels were at their lowest since about 1920.

“The outlook is for a relatively tight supply of sheep meat, and the wool that grows on the back of the sheep. That in turn means relatively high prices for both,” he said.

Dr Swan said because of limited supply, the price of the Eastern Market Indicator would probably range above $US9 a kg for the medium to long-term future.

“Superimpose on that the local exchange rate. There is talk about fair value for the Australian dollar being in the mid-60c of the US. Based on projections, the Australian dollar will stay somewhere around 70 or 80 cents, that means the EMI will probably stay around $12, $13, $14 per kg,” he said.

Dr Swan said as a result of strong returns there would be a continued appetite for investment, so sheep could be likened to the hottest commodity in town.

“Think of buying a ewe as buying a share in the stockmarket,” he said.

“Those shares nowadays cost you about $150.

“A ewe could generate a $50 fleece, plus a $150 lamb, and she’ll do it four or five times if you manage her correctly.”

He said an unsung story was that sheep gross value of agricultural production had doubled since 1991-92, though sheep numbers had halved.

Since 1991-92, in terms of dollars per head earned, in nominal terms the value of sheep meat in Australia had grown by about 6.5 per cent a year.

Wool had grown by 3.4 per cent a year in nominal terms.

“The dividend these four-legged shares have earned has grown extremely quickly,” Dr Swan said.