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Thursday, October 20, 2016

Enterprise trends in Australian agriculture

By Andrew Woods  |  Source: ABS

Key points

  • The enterprise mix in southern Australia has varied greatly during the past 45 years.
  • Major change in the area/number of key enterprises requires comparable change in competing enterprises.
  • The flock size on a DSE rating appears to have stabilised in southern Australia around 2009.
  • The crop area in southern Australia has also stabilised this decade.

2016-10-20 WOOL FIG 1

2016-10-20 WOOL FIG 2

2016-10-20 WOOL FIG 3

Following on from the look at livestock trends in New Zealand last week, Mecardo looks at the changing mix of extensive enterprises in southern Australia and Queensland since 1970.

By looking back to the early 1970s we can put the wool boom of the late 1980s and the subsequent collapse of the wool Reserve Price Scheme in context. The addition of the 1970s also includes the disastrous beef markets of the mid-1979s and the subsequent effect on cattle numbers.

Figure 1 shows the area of crop (in millions of hectares), beef cattle and sheep numbers (in millions) for southern Australia (NSW through to southern Western Australia). The crop and beef numbers refer to the left hand axis and the sheep numbers to the right hand axis. Beef numbers peak just after the mid-1970s, then fall and stay low through to the late 1980s. The crop area rises through the 1970s to peak in the mid-1980s, before falling through to the early 1990s after which it starts to rise again. Sheep numbers fall from the early 1970s through to the late 1970s and then start to pick up, with numbers rising strongly as beef cattle numbers stay low and the crop area falls.

In “Structural impediments to increasing the flock size” we discussed the requirement for the crop area to shrink if the flock size is going to increase by much more than 10%. The mid-1980s to early 1990s as shown in Figure 1 is an example of such a change in action. While beef cattle numbers picked up from the late 1980s through to the mid-1990s, the flock began its long period of shrinkage in the early 1990s with the crop area expanding to fill the void.

Figure 2 shows a similar analysis for Queensland, the cattle capital. The crop area peaked in the mid-1980s at 3.2 million hectares, after which it shrank and has spent the past 25 years oscillating around 2 million hectares. The 1970s and 1980s trends cattle numbers follows that of the south. However, as sheep numbers collapse from the early 1990s onwards, cattle numbers expand (droughts permitting). Sheep numbers are down 90% on their 1990 peak.

In Figure 3 the flock numbers for southern regions and Queensland are expressed as a proportion of the combined sheep and beef cattle DSEs (Dry Sheep Equivalents), using a basic ratio of 8 DSEs per head of beef cattle to 1 for sheep. In the southern regions the sheep proportion of DSEs fell to close to 50%, before rising to around 70% in the late 1980s. From the early 1990s onwards the proportion of sheep DSEs trended lower and by 2009 had fallen to around 50% again, after which it has stabilised. This stabilisation is another indicator that the flock size has reached a base, droughts permitting.  In Queensland during the late 1980s sheep made up nearly 20% of stock DSEs (returning to their early 1970s level).  Now they make up around 2% of Queensland stock DSEs.

What does this mean?

Recent stories about Queensland farmers struggling to find shearers makes sense given that the flock size has shrunk by 90% since the early 1990s. Services that support the industry have been forced to shrink as well. The record of enterprise change during the past 40 years shows that this situation can change. In Queensland beef cattle have been increasing in number (droughts aside) for the past three decades.

For sheep numbers to increase greatly they will have to take country from cattle, which are having a good run so increases in Queensland sheep numbers will probably be moderate, In the south crop area, sheep and beef cattle numbers have been relatively steady this decade. If livestock are to take country from crops they need to do so now while price relativities favour beef, lamb and wool.

Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 


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