Signs of recovery encourage growers to build for the future

Melissa WilliamsCountryman

WA's sheep numbers have crashed to levels not seen since 1957, at 14.5 million head, and are well below the record peak of almost 40 million in the early 1990s.

But a turnaround in Merino production is forecast for most of the State's agricultural zones in the next 12 months, according to leading farm consultants, as producers seek to capitalise on high wool, wether, ewe and lamb prices and rebuild maternal breeding numbers for the sheepmeat and lamb sector.

The WA Sheep Flock Survey released by Planfarm in late June forecast a 3.2 per cent increase in WA sheep numbers to May 2013, arresting an annual contraction of 3.75 per cent since 2005 and turning around the previous year's decline of about 2 per cent.

It indicated many producers were now seeking to stabilise numbers after being forced to destock in the 2010 drought.

Murdoch University research scientist Graham Gardner said it was vital to boost sheep numbers in this State to ensure sustainable future demand and supply of sheep products.

He said Merinos were the key because the breed made up about 85 per cent of the State's flock.

WA had an estimated eight million ewes in February this year, of which 62 per cent were Merinos mated to Merino rams for wool production and 21 per cent Merinos mated to terminal sires for cross breeding.

Dr Gardner said long-term average Merino lamb marking rates (lambs marked per ewe joined) of 77 per cent were the biggest obstacle to recovering sheep numbers in WA and it was estimated an increase of 12 per cent in lamb marking would be worth about $64 million to the local sheep industry.

He said there was capacity to wean more lambs across WA this winter and spring because of the good condition of ewes after a good spring in 2011 and high stubble values in summer.

Key drivers to encourage producers to continue improving marking percentages and build flock numbers will be meat and wool returns and the outlook for both is positive on the back of increasing demand.

Independent agricultural consultant Peter Rowe told the June Agribusiness Sheep Updates the western market indicator was likely to average 1050c/kg through the 2012-13 financial year, which was down about 24 per cent from its peak in June 2011.

But he said prices were expected to increase again in 2013 on the back of low wool stockpiles and a return of European consumers to the fibre.

Fremantle wool prices closed at 1054c/kg in late July before the winter break and the outlook when sales resume in early August is generally positive for the second half of the year as supplies remain tight.

Mr Rowe said sheep meat prices were expected to recover this year due to increased exports of lamb to the US, a variety of export markets and strong economies in major buying countries. He said he was budgeting on lamb prices of $4.20/kg in the next two to three years.

Merino lamb prices reached $4.30/kg on average at WAMMCO International in mid-July before the plant closed for winter maintenance. Company supply development manager Rob Davidson said the market had since increased and prices would be reviewed when the plant re-opened in mid-late August.

V & V Walsh has continued to process lambs through winter but has not secured Merino supplies.

Company buyer Robbie Cockman said the lamb market had jumped in recent weeks and most carcase lamb was now trading at about $4.80/kg. He expected new season lamb would attract higher prices of around $5/kg.

But he said Merino lambs were expected to be in short supply as producers retained sheep for breeding.

Export shipper prices have been trading around $90-100/head in 2012, which continues to be a solid return. The impact of the introduction of the Exporter Supply Chain Assurance Scheme (ECSAS) into destination markets by the end of this year remains to be seen.

Department of Agriculture and Food WA (DAFWA) senior economist Lucy Anderton said that overall sheep enterprises in the Great Southern could this year be expected to yield similar gross margins to wheat and canola, at $220-$240/ha.

She said a Merino flock producing shipping wethers was likely to be the most profitable sheep enterprise in 2012, with a gross margin - after covering all variable costs - of $276/ha. "This is based on a wool price of $11.50/kg and shipping wethers selling for just under $100/head," she said.

Ms Anderton said almost as profitable, at $218/ha, was a self-replacing Merino flock with older ewes mated to terminal sires. This was based on a prime lamb price of $4.20/kg and wool price of $10.50/kg.

Mr Rowe said 2012 was shaping up to be a tough year for grain producers but farmers with sheep on their properties were likely to do well.

"The (DAFWA) gross margin analysis looked at above and below average seasons to examine the volatility of each enterprise and sheep enterprises held up well, even during a poor year," he said.

"Farmers are this year being reminded of the benefits of a mixed farm - with crop and sheep enterprises sharing the risk.

"The fundamental drivers of sheep farming have now changed (with low supplies) and when longer-term prices are adopted, the profitability of canola, wool, sheepmeat and wheat are all similar. I expect to see many farmers move their rotations back to having more sheep in the next couple of years for financial and rotational balance."

The WA Sheep Industry Leadership Council (SILC) said WA processors and live exporters needed a minimum 5.6 million head of sheep per year to fill markets.

It said even at this level of turnoff, WA sheep processors would be running inefficiently with shorter shifts, short weeks and longer shutdowns and live exporters might have to source more sheep from the eastern states.

The SILC said WA sheep marking rates needed to lift to 90 per cent to address the declining sheep population and it has announced a More Sheep 100%+ club initiative to encourage producers to achieve at least 100 per cent lambing rates.

Victorian-based agricultural consultant Jason Trompf, of JT Agri-Source, told the July Sheep Updates the average national Merino marking rate of 77 per cent had been static for the past 20 years and it was time for the industry to change its game plan.

"In New Zealand in that time there has been a 30 per cent improvement in average national lamb marking rates," he said.

"At 77 per cent, sheep flocks are hardly self-replacing, let alone providing the ability for the country to sell off its long-term average of 38 million head of sheep each year.

"If we can lift marking rates by 5-10 per cent, we can sustain our turnoff and build-up flock numbers."

SILC has found a 12 per cent increase in marking rates, from 78 to 90 per cent, would be worth about $50 per extra lamb on-farm at average stocking rates and current meat prices.

The council said increasing lamb survival was worth three times as much as lifting conception rates, which in WA were generally about 120 per cent but were not being converted to lambs marked (at the 77 per cent average).

Mr Trompf said reproductive rates were an important profit-driver and the focus should be on using best management practices to allow twin lambs to thrive and survive.

He said this would also have positive spin-offs in reducing lamb losses for better welfare outcomes, applying greater selection pressure to fast-track genetic gains and providing greater business flexibility.

Mr Trompf said Merinos were fertile sheep but were getting a bad rap from breeding and management practices that resulted in average survival rates for twins of 50 per cent and singles of 80 per cent.

"There are about 40 million ewes in Australia conceiving about 50 million foetuses - at an average conception rate of 125 per cent - but we are only marking about 30 million lambs, which is about two thirds of the lambs that were alive mid-pregnancy," he said. "This shows survival is a bigger issue than conception and we need to convert the potential number of foetuses to reality.

"This can be done with a focus on ewe nutrition in late pregnancy and boosting survival rates to 70 per cent in twins and 90 per cent in singles to get an overall 100 per cent marking percentage."

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