Decisions During Drought – Victorian Woolgrowers

Many woolgrowers will face complex and emotive decisions regarding their business, animals and pasture resources going into and coming out of drought. For many, maintaining sheep helps diversify income, improve risk management and provide benefits to the cropping phase through weed control, nitrogen and organic matter.

Drought planning is not about making profits - it is about minimising any losses. These key messages and tips are designed to support decision making during drought.

1. MAKE A PLAN

In Victoria, drought-affected woolgrowers can be divided into three groups, as far as drought is concerned:

1. Those who had a ‘normal’ spring
2. Those on a knife’s edge – waiting for a good rain
3. Those experiencing severe drought conditions.

Woolgrowers on a knife’s edge or in drought should ask:

1. Do you know how important sheep are to the viability (short and long term) of your business (cash flow, risk management, profit, spread of enterprise, crop disease resistance)?
2. How many sheep do you have the capacity to carry through (in terms of people, expense, feed, water, facilities)? What will it cost to feed? How long will you have to feed? What is the sale price of those sheep now? What will be their replacement cost?
3. Which groups of sheep should you keep – ewes, wethers, weaners?
4. What method of selection will you use within each group?

2. SEEK ADVICE AND HELP

Discuss the issues facing your enterprise with your family and support team. If you are unsure of the answers seek assistance from your advisors, remember to take both short and long term planning horizons.

Seek information and support through professional channels including:

1. Drought Hotline
2. Rural Financial Counsellors
3. Your farm consultant or
4. Bank Manager.

Contact an advisor who can help you work through your situation and help you to plan for the future.

3. THE IMPORTANCE OF SHEEP IN THE LONG TERM AS PART OF A MIXED ENTERPRISE FARM

Under drought conditions, your initial reaction may be that you cannot afford to keep sheep, but it is possible that you will need them in the long term and you may be better off to meet the cost of keeping them.

Remember - crops are often more risky because there is a single point of harvest. In good years, the results are good but failure can be very expensive. Grazing systems can be more flexible and offer greater protection against risk.

The chief reasons for having a livestock enterprise combined with crop are risk management and the benefits grazing can provide to the cropping system. These benefits include:

1. Using land which is unsuitable for crop - which occurs on most farms
2. Using labour more efficiently
3. Rotational advantages – disease and weed management and nitrogen additions
4. Weed control
5. A longer list of benefits for those prepared to consider the advantages of livestock.

In average and good rainfall years, more crop can mean more profit, but the cash involved in growing that crop will increase. It is also true that the greater the input the greater the risk in adverse seasons and therefore more input costs are put at risk with crop failure.

Having livestock may reduce profit slightly but reduce the risk in a big way. This effect is shown in figure 1 which models the cash position over three years of a mixed farm and a continuously cropped farm. The model shows three average years, and average years in the first and third years with a drought year in the second year. In a run of three good years, the continuous cropping system has a cash position $213,000, better than the mixed farming system. However, a drought in the second year reduces the income of both systems, but the mixed farming system is ahead of the continuous cropping system by $167,000, by the end of the third year.

Figure 1: Effect of sheep on cash flow - Farm Wizard™

If seasons become less reliable under climate change, cropping will become more risky, with a greater chance of either no sowing, late sowing or crop failure. Mono cultures under this scenario are particularly risky. There is strong evidence that having sheep in the system will spread and reduce the risk. Even where there tends to be no or little income from crop there is usually some from the sheep enterprise. Running some sheep is a sensible diversification.

4. WHEN IS THE DROUGHT MOST LIKELY TO BREAK?

It is impossible to know when a drought will break, however historically in most areas of Victoria, the autumn break comes in May or later. A prudent approach to budgeting for drought expenses is to look at covering costs until June – the best chance of a drought breaking that year. Remember that it will be some weeks after the break before you can stop feeding.

5. DECIDE WHICH LIVESTOCK TO KEEP

If you are in drought or heading into drought, consider:

1. Which groups of sheep should you keep – ewes, wethers, weaners?
2. What method of selection will you use within each group?
3. What is the value and productive potential of your genetics relative to the sheep you could buy post drought?

Planning will allow you to determine the future of your sheep enterprise and the cost of keeping your sheep. Do you need to sell or can you afford to retain your breeding flock? If you decide to sell, what alternative enterprises are affordable and/or available? Cropping may not be a sensible option.

All systems may result in a loss in a drought, so knowing what creates the chance of the lowest loss in the short and medium term is critical.

How many sheep can you afford to carry through?

Firstly, calculate the cost of feeding.

Weekly feed costs for a range of livestock classes and grain prices (droughtlotting)

More detailed costs of feeding can be obtained from programs such as Stockplan^® and Lifetime Wool Feed BudgetTables for Dry Times.

Next, look at all of the costs (over and above the cost of feeding) such as infrastructure (containment areas, water), animal health and labour, to calculate the true cost of keeping sheep.

Make a judgement about the current value of stock if they are to be sold, versus the cost of restocking at some time in the future when the drought has broken or suitable stock become available. If in your opinion, the net sale value plus the cost of feeding is likely to be greater than the cost of restocking, then selling may be a realistic option. It is likely that this equation will be different for each class of stock.

There is a view that stock prices increase significantly after a drought. Ewe prices soared in 2010/11 as demand for ewes outstripped supply. In both 2003 and 2007, stock prices fluctuated widely in response to rain in various parts of the country but generally kept within the top range reached in non-drought years as shown in the following graph.

Historic ewe prices

6. DROUGHTLOTTING/CONFINEMENT FEEDING

Sometimes it is important to retain sheep with a value higher than meat values. Ram breeding flocks, sheep carefully selected over many years, new breeds, and ewes that you estimate will be difficult to source post drought may have an intrinsically value higher than meat values.

An interruption to the breeding cycle, e.g. where bought-in sheep can’t be joined to fit the farm’s reproductive program, may also be a consideration.

Under severe conditions, droughtlotting can be recommended for many reasons:

1. Care of the property with less land degradation(wind and water erosion)
2. Quicker pasture recovery with rain
3. Less feed required because the sheep do not walk as far
4. Greater control of feeding and water supplies
5. More simple and regular checking of the results of feeding and livestock condition.

The AWI publication, Managing sheep in droughtlots (pdf 1.11Mb), highlights the purpose, benefits and experiences of woolgrowers managing sheep in confined areas during drought

7. KEEP UP SOCIAL CONTACT WITH FRIENDS, COMMUNITY AND RELATIVES

Sustained drought has a significant impact on individuals and families. Health professionals recommend that during drought, farming families recognise and acknowledge what can be a very emotional period.

Positive ways of coping with drought include:

• Taking time to be with family and friends.
• Trying to keep the rest of your life as normal as possible.
• Openly discussing issues relating to drought and its impact on family income.
• Looking after yourself (eating properly, exercising).
• Expressing your emotions and letting your family talk about their emotions.
• Taking more care when driving or working around the farm.
• Remembering your sense of humour and laughing.
• Taking breaks and holidays away from the farm whenever possible.

Australian Wool Innovation Limited (AWI) and Meat & Livestock Australia (MLA) engaged Mike Stephens from the consultancy firm MS&A to develop key messages and tips to support decision making during drought.

These key messages are supported by a range of resources which can be accessed through the AWI website here.