Are you a Gun, a Gunna or a Goner?
Ken Solly looks at key profit drivers in livestock enterprises
In a recent ‘no holds barred’ presentation to the Ag Excellence Alliance / Grain &
Graze 2’s Adaptive Management Workshop in Adelaide Ken Solly expressed his view
of some ‘home truths’ in Australian agriculture. Of the 130,000 farmers, Ken reckons
30,000 are highly profitable and he calls them ‘the Guns’. “The Gunnas’ are the next
50,000 who are treading water and making some money in the good years. Then
there are ‘the Goners’, the least profitable group who are important in providing
valuable volume to the trade, are an important part of the communities in which we
live but continue to struggle with the economics of their operations.
“Two thirds of the profits are made in one third of the years,” so it is imperative that
farmers are able to take advantage of opportunities when they present themselves.
Ken sees a lack of profit as a people problem rather than a production problem in
the first instance. Excuses about seasons and markets might be relevant for short
periods but over the long term farmers must be profitable.
“Change is not compulsory but neither is survival. If we keep doing what we have
always done we will always get what we’ve always got.” Many livestock producers
have been lulled into a false sense of security by recent extra increases in livestock
profits which in most circumstances can be attributed more to markets than to onfarm productivity gains.
Understanding what makes up profit is fundamental. “The dilemma with agriculture
is the way in which people enter it. Inheritance is a poor driver for the future.” A
cash surplus at the end of the year is not the only indicator of profit. If non-cash
considerations of lifestyle are factored in then farming income might look more
attractive when compared to the lure of the mining industry.
Work out what the Key Performance Indicators or benchmarks are for your business.
Ken suggests a goal of 20% turnover and a 65% gross margin for broadacre
businesses as something to aim for.
Understanding cost structures can help you on the way to achieving that. What are
the appropriate input levels? Understand the difference between optimum and
maximum so that when you get diminishing returns you can adjust accordingly. “You
may know that the first third of your input of fertiliser will give you good returns, the
second third may be warranted but the last third always needs to be challenged.
Once you get focussed on that you will be making better decisions about the level of
input you really need.”
Don’t just work off gross margins. What are the combined fixed costs per ha; your
overheads interest and wages? Those things taken together are fast approaching
operating costs on some farms. So fixed plus operating costs can help you determine
what the target profit must be to break even.
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Ken Solly – Key Profit Drivers in Livestock Enterprises
“Quantify the cost of inflation in production terms every year. If you have $400k
worth of costs and inflation is running at 3% that’s another $12k in costs next year.
How are you going to meet that? If lambs are $100 then you have to produce
another 120 lambs just to maintain the margin you already had. So quantify the
inflation in production terms not just in dollar terms.”
Ken didn’t pull any punches when saying that outside the top 20% of producers, the
sheep industry in Australia has been a ‘basket case’ for 40 years. He challenged the
audience to think about the requirements of productivity gains to actually maintain
your position relative to inflation over 40 years. Roughly $40 would now be required
to purchase what you could have bought for $4.40 back in 1951 but what has
happened on the production side?
Stocking rate is up 17%, micron up 7% and wool cut is up 5%. Ken made the point
that if crop yields had only risen 5% in the same period we’d be worried. Real wool
prices were up only 15%, lambing percentage is down 5%. Some of this can explain
why the national flock went from 180M back to 70M. However, prime lamb prices
are up 110%! We cannot keep doing what we have been doing in the sheep industry
and expect to survive, particularly if the price actually goes back to where it has been
prior to the last couple of years.
Sheep producers know that flocks can only genetically improve at a rate comparable
to the quality increase of the studs they purchase. Ken challenged the group to
improve personal ability, productivity and subsequent profitability in a similar way.
“It just doesn’t happen by luck. It doesn’t happen unless you keep working on
yourselves to be better managers.”
Characteristics you need as a key profit driver for your business
• Understand the key drivers in the business
• Measure, Measure, Measure
• Have great personal discipline
• Allocate resources well
• Have a support team around you
• Keep your eyes firmly on the main game
• Have good planning, monitoring and analysis skills
• Synthesise information well
• Remain abreast of new technology
• Milk every mistake for all it is worth and don’t make it again. It’s not a
mistake the first time it’s a learning opportunity!
• Always conduct your own applied on-farm research
• Ensure timing of operations is optimal
“The most important element is to know your margin per kilogram, per ha, per unit
and then multiply it as many times as you can. A lot of people know what the price is
or what the income is but you never know the margin until you actually know what
your full cost of production is, not just operating costs!”
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Ken Solly – Key Profit Drivers in Livestock Enterprises
“If you look over a ten-year period for average operators it is an existence lifestyle
for most years. In a couple of years they make a few extra bucks.
I think there is not much point in being an average producer. If you enjoy being
average I think you should go behind the shed and have a good talk to yourself!”
Real Gains in being a top 20 percenter
Lamb Indicators/kg
cwt
Average
Top 20%
Enterprise Costs
$2.37
$1.80
Overhead Costs
$1.72
$1.01
Owner Operator
$0.90
$0.73
Cost of Production
$4.99
$3.54
Less Wool Income
$2.93
$2.41
Less Sheep Trading
Inc
$1.88
$1.49
Break Even Price
$0.17
-$.35
Lamb Price Received
$6.10
$6.14
Profit Exclusive
Interest/Lease
$5.92
$6.49
“The traditional French – Schultz model would see stocking rates in the order of 13
dse/ha in a 500mm rainfall area. Most farmers in a region like that are at 60% of
potential due to pastures declining in the dry years and stocking rates reduced. Top
lamb producers are aiming to produce 100% of the ewe weight in 100 days, for
example a 60 kg ewe producing 60kgs of liveweight. Seventy percent of her feed is
going to maintenance so we need to make sure it is an efficient operation.”
Ken quoted Rod Manning’s (well respected private livestock consultant from NE
Victoria) Beef Scale Factors (numbers indicates relative importance):
• 8 – Stocking Rate
• 4 – Fertility
• 2 – Growth Rate
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Ken Solly – Key Profit Drivers in Livestock Enterprises
•
1 – Carcass Characteristics
For many producers Ken Solly does not see new technology as the key to the
most achievable gains. The biggest increase in profit for most producers is to
“stop what is slipping through your fingers!”
“The death rate for the national flock in lamb loss, birth, predators, etc is
probably in the order of 30-40%. First cross ewes have a conception rate of
around 170% but by the time the lambs are ready for sale it is probably back
around 130%. This is a huge loss we have in our grasp yet we let it slip through
our fingers. We need to work on how we can improve that.”
Managing losses
• Losses come out of the profit first
• Poor lambing and calving percentages
• Poor pasture utilisation
• Missing genetic opportunities
• Poor timing
• Not matching feed demand and supply
• Traditional thinking
• Slow uptake of technology
• Same ingredients wrong proportions
• Failure to measure it
How many farmers would value the loss of a ewe at $600?
Scenario: A full wool ewe dies from twin lamb disease
Value of ewe upon death
= $180
Value of lost wool
= $ 40
Value of lost twin No 1
= $100
Value of lost twin No 2
= $100
Cost of replacing ewe = $180
Total cost of lost ewe
= $600 (Gross)
Despite painting a gloomy picture of the sheep industry and well and truly rattling
the cage of producers, Ken Solly spoke about the Lifetime Ewe Management
Program as one with the potential to turn this around. He currently has three groups
in the South East and Border region covering 90,000 ewes plus 20,000 other sheep.
Producers form groups of 4 to 6 farms and meet for six sessions per year. Flocks are
monitored, and condition scored, feed budgets are calculated and pastures are
assessed. One rule of thumb sees all ewes rested for longer than they lactate.
Ken Solly left the group with some priceless thoughts:
• There is only one fool who you can really fool: yourself. Remain honest to
yourself and you will not become one.
• Only accept reasons not excuses for how things turn out.
• If you are ever the smartest person in the room then you may be in the
wrong room!
• You must give and share so you can receive.
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Ken Solly – Key Profit Drivers in Livestock Enterprises
•
•
Measure twice and cut once.
Spend 1 % of your gross income on your own professional development.
For more information Ken Solly can be contacted at:
Ph. 08 8762 0895
Written for Grain and Graze 2 by Mike Roberts Communications, Research and Consulting.
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Ken Solly – Key Profit Drivers in Livestock Enterprises