Brought to you by AG Concepts

Tuesday, November 08, 2016

Merino lambs the punters choice

By Robert Herrmann  |  Source: AWEX, ACA

Key points

  • Large framed merino wether lambs are available each year
  • These lines are potentially ideal for “feeding to finish”
  • The expected trade margin is attractive this season

2016-11-08 Merino Fig 1

2016-11-08 Merino Fig 2

Earlier this year we had a retrospective analysis of how a lamb trade using large framed merino wether lambs has stacked up over the past 3 years. We also said that come the Spring of this year we would re-visit and look at the opportunity with the new season’s values included. It makes for interesting reading to see the projected result.

To provide a model for this analysis we have to gather as many facts as possible and also make the best forecasts of the remaining impacts on the trade.

As outlined in Table 1, the lambs are born May/June, purchased November/December, shorn in Feb/March before going into a grain finishing program for 40 days before sale.

To begin we used the AuctionsPlus average price for merino wether lambs sourced from Vic, S.A, NSW; 33 – 42 kg LWT (average 37kg). AuctionsPlus report that over 40,000 have been sold that meet these criteria for an average price of $95.17 per head. This is almost $20 dearer than last year.

As described in Table 2, our projections vary from previous years results; for example, we have increased wool cut to 3.0 kg due to the very good season. We are still expecting to grain feed to finish for 40 days, however with cheap Feed Barley available the budget cost is reduced to $0.25 per day or $10.00 per head. Another noted change is the improved skin value up to $8.

To keep the figure realistic, also included is an Agistment cost of $5.10 per head, that is $0.30 per week for 17 weeks prior to entering the feedlot.

Of interest is the changing price relationship of Merino lambs to the supposed better quality Trade Lambs covered previously by Mecardo in “Merino lambs becoming more valuable.” Since 2008 the spread between Merino lambs and trade lambs has tightened considerably, with the lowest spread each year post January. Fig 1.

While using published market data to calculate purchase costs and income (wool and meat), as would be expected we have made many assumptions. Transport has deliberately been left out as it is variable between locations, however we have allowed for “poor doers” at 3% of total numbers discounted 50% of the final price.

For a complete explanation of our assumptions and modelling, have a look at the April article published in Mecardo “Merino lambs to the slaughter”.

What does this mean?

While the figures will vary from enterprise to enterprise and year to year, even using conservative cost and income figures buying wether lambs and taking them through to April – May as slaughter ready is attractive.

Every season is different; in the outlined scenario the purchase price, cost of gain and sale price make up the trading equation.

While the purchase price has risen substantially, the expected return is around $8.50 better than last season with the Net Margin estimated at $21 per head.

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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