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Position of Australian Slaughter Lamb Producers Weakens

21 July 2013

The average financial performance of Australian slaughter lamb producing farms is expected to weaken in 2012–13 but remain above the long-term industry average, according to a report from the Australian Bureau of Agricultural and Resource Economics and Sciences – ABARES.

This is due to significantly lower prices received for slaughter lambs, sheep and wool despite increased turn-off as seasonal conditions become drier.

The report, Australian lamb - Financial performance of slaughter lamb producing farms 2010–11 to 2012–13 by Tim Caboche and Therese Thompson, says that around 18,800 Australian broadacre farms sell more than 200 lambs for slaughter. These farms are classified as slaughter lamb producers.

Most of these farms are mixed enterprise, deriving a substantial proportion of their receipts from cropping, beef cattle, sheep and wool, as well as from the sale of slaughter lambs.

Average farm cash income for Australian slaughter lamb producing farms is expected to fall from an average of A$172,000 per farm in 2011–12 to A$139,000 per farm in 2012–13.

However, ABARES says that this is still around 13 per cent above the average for the 10 years ending 2012–13 in real terms.

Around 11,300 slaughter lamb producers, which are classified as specialist slaughter lamb producers, earned more than 20 per cent of their total farm receipts from the sale of slaughter lambs in 2012–13.

These farms generally have much smaller cropping and beef cattle enterprises than other slaughter lamb producing farms, resulting in a smaller overall scale of operations.

As a result they have lower farm cash incomes, on average.

Farm cash income for specialist slaughter lamb producers (that is, farms more reliant on lambs) is expected to fall from an average of A$76,100 per farm in 2011–12 to A$62,000 per farm in 2012–13.

If achieved this would be around nine per cent below the average for the 10 years ending 2012–13 in real terms, ABARES says.

Farm business debt increased only slightly in 2011–12 and farm business equity ratios remained relatively high, averaging 87 per cent at 30 June 2012.

Farm debt is expected to remain stable in 2012–13 and, combined with lower interest rates, is expected to lead to improvements in the debt servicing position of slaughter lamb producing farms.

However, ABARES believes that the proportion of farm receipts needed to meet interest payments remains relatively high.

Australian slaughter lamb producers are estimated to be in an above average financial position in 2012–13. Improved seasonal conditions in 2010–11 and 2011–12 have resulted in increased sheep and lamb numbers.

High farm cash incomes in these years have resulted in record investment in land, vehicles, plant, machinery and improvements in recent years.

This should provide a basis to further increase farm productivity and, together with strong farm equity, underpin farm financial performance over the medium term despite dry seasonal conditions and lower prices in 2012–13, ABARES forecasts.

July 2013

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