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Lamb lot-feeding figures stack up with new forward contract prices

by Sheep Central, 10 October 2018

Sheep Solutions principal Geoff Duddy.

LAMB restockers and finishers can make money at recent Christmas-New Year forward contract price levels, and especially if lambs can be backgrounded on pasture, Sheep Solution principal Geoff Duddy said today.

Thomas Foods International yesterday released its Christmas-New Year contract for 18-32kg carcase weight 2-5 score lambs delivered to its Lobethal and Tamworth plants, offering 750c/kg for crossbred and Dorper lambs in December, rising to 780c/kg in January and to 800c/kg in February. Click here to view the full TFI forward lamb contract.

Producers with Merino lambs in the same weight range and condition score will be paid 720c/kg in December, 750c/kg in January and 770c/kg in February.

“There is money to made and more if producers are able to background on pasture initially at a lower cost and hit the February market, Mr Duddy said.

Mr Duddy ran several scenarios for both crossbred and Merino lambs, using some basic assumptions.

A store lamb purchase liveweight of 38kg and sale weights of 50kgs (23kg HSCW) and 60kgs (27kg HSCW).

Merino growth rates of 250 grams/head/day and for crossbreds 300gms/hd/day

Sale prices as per TFI grid values for both breeds, but with crossbred and Merino skin values of $10 and $12 respectively

All lambs shorn (1.5kg fleece), no wool marketing costs taken into account, selling the crossbred lambswool at 600c/kg clean and the Merino wool at 1200c/kg clean.

Crossbred lamb purchase costs of 678c/kg + $7 skin = 285c/kg live plus skin = $115.26 plus skin, and for Merinos 599c/kg + $7 skin = 250c/kg live plus skin = $101.83 plus skin.

He used two ration costs of $502 and $585/tonne (75pc barley @ $450 and $550/tonne; 10pc lupins @ $600/tonne and 15pc hay @ $350/tonne

Applying 10pc interest on purchased lambs; $13/tonne machinery feed-out costs and $2.05 per lamb drench/vaccine costs etc.

Lamb costs as a percentage of sale price

Mr Duddy’s findings were that the crossbred store lamb costs as a percentage of sale price (on a c/kg not $/hd basis) varied from 80-86pc for trade weight and heavy lambs.

For Merino lambs he found the store lamb costs as percentage of sale price were 71-77pc.

“I generally work on the store value relative to the trade sale value as needing to be at or below 85pc to increase likelihood of profits and reduce risk.

“Both breeds hit this target and this shows in the profit results below.”

“So Paul Leonard is right re it being a good time to buy stores given the contracts on offer and despite high ration costs,” he said.

“Store values have dropped by between 12 and 17pc for crossbreds and 15 and 25pc for Merinos over the past 4-5 weeks and as a percentage of total finishing costs now represent between 67pc and 55pc of cost share for taking crossbreds to 50kg and 60kg sale weights and between 49pc to 62pc for the Merinos.

“While still a significant cost, the store lamb percentage share of total costs when feedlotting lambs are historically lower than ‘normal’.

Feed costs represented between 19-32pc and 24-38pc for the Merinos and the crossbreds depending on target sale weight and ration cost, so despite high grain/hay prices feed is still not the big cost,” Mr Duddy said.

In summary profits were:                        At $502/tonne                                   At $585/tonne

Sale price                                             750c       780c       800c                       750c       780c       800c

Crossbreds         23kg                       $16.19   $22.65   $26.95                   $10.79   $17.24   $21.25

27kg                       $10.01   $17.72   $22.86                   -$1.03    $6.68     $11.82

Sale price                                            720c       750c       770c                       720c       750c       770c

Merinos              23kg                       $20.24   $26.70   $31.00                   $26.73   $33.19   $37.49

27kg                       -$ 1.31   $ 6.40    $11.54                   $11.94   $19.65   $24.29

Mr Duddy concluded that feedlotting should be reasonably profitable:

– except if selling heavy lambs early (December) under these contract prices, with the most gain to be made when finishing lambs to trade (23kg) more so than to heavy (27kg) weights;

  • – when finishing Dorper lambs which, again historically, do not generally have as high a starting ‘store’ value as a crossbred lamb, but also do not attract the same end skin value. These factors generally cancel one another out, keeping profit margins similar to those of crossbred lambs;

– when finishing Merinos because of the additional gains from fleece values and given that the Merino contract values are 96pc the carcase value of crossbred lambs.

“This last point has been an increasing trend over the past 5-7 years due to the lack of crossbred lambs and the industry producing plainer bodied Merinos and more carcase-focused Merino wether lambs, and producers now know how to feed/finish these lambs.”

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