We enjoyed a huge turnout at our Lamb Feedlotting Masterclass, held last month. It provided a great opportunity to gain insight into the situation farmers are currently facing, and what they have experienced last season. The topic that was most frequently brought up was the helplessness farmers felt with selling their store lambs last season, and the uncertainty they felt with their lambs in this season’s trying conditions. Investing in the infrastructure to lot feed lambs provides farmers with the ability to hold lambs through depressed market prices. This results in converting store animals into fat animals, so the farmer will receive any market premiums available. When the lamb market is operating in an irrational way, a lamb feedlot gives you the ability to capitalise on the opportunity to purchase undervalued store lambs, feeding them while you allow the panic to settle in the market, then to sell them as high-value finished lamb.
Lamb feedlot financial benefits:
– Don’t accept the loss when prices are against you
– Take opportunities when there is a large spread in prices
– Increasing the value of your own store lambs
– Scale leads to improved farm efficiencies
– Diversification in enterprises reduces risk
A lamb feedlot can be set up in an infinite number of ways. It doesn’t need to start with a big financial cost. There are a few things as a minimum, that are needed to start, and many of these things are already on most farms. A small paddock, a water trough that you can easily clean, lick or grain feeders for pellets or grain, a silo to put feed in, and something to move the feed from the silo to the feeders. It can seem like a financially scary process to start but it doesn’t need to be.
Don’t accept the loss when prices are against you
The spring of 2023 saw an offloading of store lambs at very low prices. 40kg second cross lambs were being sold for $80 or $2/kg liveweight. Even if a farmer is happy to not make a return on their assets, this $80 price is well below the cost of production on most farms. By mid-January, 2024, the price had improved. The farmers that held their nerve or bought in these cheap store lambs, were selling the same lamb, finished, at 60kg liveweight for $210, that is, $3.50/kg. An increase of $1.50/kg liveweight. I think breeding growing weaners is 90% of the work, so why would you give someone else the opportunity to profit on your lambs, when you have come so far with them?
Take opportunities when there is a large spread in prices
Last year was exceptional for those who bought in store lambs when they were undervalued. After talking with several stock agents, this could have been one of the most profitable times to have lambs and perhaps it won’t be repeated. Alternatively, just because you have a feedlot, doesn’t mean you need to fill it. For me, the current spread between the purchase cost of a store lamb, and the forecasted fat sales price, provides the gap for a good profit and return on the assets needed for our feedlot. I recently heard Geoff Duddy, from Sheep Solutions, present his findings on the profitability of a feedlotting enterprise. They were, as a general rule, when the store lamb price per kg is 85% of the finished lamb price per kg, there is a profit to be made in feedlotting lambs. With this, based on selling lamb at $8.50kg dressed in January, these numbers work, and we have jumped on this opportunity to top up our feedlot with store lambs.
Increase the value of your own store lambs
I like the rule of thumb that Geoff has come up with. I have been guilty of not using this in the past and buying in store lambs that were priced at more cents per kg than what I eventually sold them for. For me, feedlotting for the sake of it isn’t rewarding. When it comes to your own bred lambs, there are a number of factors that are in the breeders favour when it comes to increasing on farm profit through feedlotting. Animal health and transport are two of the biggest factors. You know their full health history already, and there is no freighting in costs that you need to cover. Another big saving is that when our ‘breeding’ business sells its store lambs to our ‘finishing’ business, we are not paying agents fees, yard fees, etc. to facilitate this. In our game, making profit is hard going, so a dollar saved is a dollar made. On top of this, you have transition control. You have full control of the lambs from paddock to feedlot. This gives certainty with cost effective grain training, imprinting feeding or creep feeding your lambs prior to feedlot entry, for a low-cost, low stress transition. Lambs adapt and gain weight faster without an expensive induction. For our farm, the 85% rule of thumb for bought in store lambs changes to 100% for our own lambs coming into the feedlot. This means that there are going to be years when it isn’t profitable for us to top up our feedlot with bought in store lambs. However, it will be profitable to finish our home bred lambs and our feedlot infrastructure is used more frequently and increases our return on its capital.
Scale leads to improved farm efficiencies
A lot of the infrastructure that is needed in a breeding enterprise is also used in a feedlot enterprise. This Includes sheep yard and shed facilites for drenching, weighing, and shearing. Adding a lamb feedlot to a breeding farm adds scale. This has made it financially viable for us to invest in assets that make our breeding farm more efficient and profitable such as a bulk handler for administering treatments, a 3-way drafter for weighing, an in-pen weighing system, and an extension of our over yards cover. Assets that allow you to increase your efficiencies mean you are more likely to do those tasks, like drenching, in a timely manner with minimal fuss and maximum ‘positivity’. In the back of my mind, it is satisfying to be doing a task when it is best practice.
Diversification in enterprises reduces risk
It is the dream of a lot of businesses to diversify in another business that has ups, when the other has lows, and vice versa. This is what a breeding farm is to a feedlot. When store lambs are too expensive to finish in a feedlot, it is highly likely that the breeding farm will be having an above average year, and be profitable. In a year like this one, our breeding farm will be marginal at best but we foresee making up for that in our feedlot. For a bank that loans money to farms, wouldn’t this be an ideal candidate? One that is diversified and can make a profit nine years out of ten? Until this year, I didn’t appreciate how our feedlot worked in our enterprise. For a season that is panning out to be the 3rd driest over the last 120 years, and much higher than average feeding quantities, it could end up being one of our most profitable years farming across our two enterprises.
Conclusion
My farm passion is to improve soil carbon, soil health, water to pasture efficiency, growing pasture, having stock convert pasture when it is at its highest value, supporting ruminants to most efficiently convert a byproduct, that is grass, into something that adds value to the world, make a profit and manufacture a return on investment that is comparable to other investments. Lamb feedlotting didn’t fit into this prior to last year but it does now. Our automated feeding system means that we are running a business that has a gross profit (sale price less purchase price) of over a million dollars with less than one tenth of a labour unit for 8 months of the year. (Note: this considers that contractors do shearing, crutching and animal health treatments). A team member of ours has said to me that the livestock industry needs to start thinking about how it can compete with grain growing efficiencies. I think that with best practice in lamb feed lotting that can be achieved. Not every year is going to be profitable to feedlot lambs, but it is really nice to be in a proactive position before you start. To be able to have the options of choosing to take it easy for a season, when it’s not profitable, or to capitalise on the opportunities when there is profit to be made. The same can’t be said when you are committed to a system of growing beef, wool or grain.
