Forecasting the performance of alternative sheep production systems grazing perennial pastures

Abstract

Context

Grazing enterprises employ a range of management strategies in rain-fed Australian sheep production systems, which alters both production potential and profitability. This research used a stochastic whole-farm simulation modelling methodology to assess the impact of six different management regimes on the long-term profitability of a model farm simulated from August 1971 to July 2018.

Objective

We aimed to 1) compare the whole farm productivity and economics of the different sheep production systems, 2) identify the factors that were driving the differences between systems, and 3) determine if the profitability and ranking of systems changed in response to different market and environmental conditions.

Method

Stochastic simulation whole-farm modelling, combined AusFarm® biophysical simulation data, with forecasted @Risk modelling price time series data. The economic and financial performance of different sheep management systems were assessed using gross margins, cash flows, net present values (NPV), coefficient of variation (CoV) and cash flow modified internal rates of return (MIRR).

Results and conclusions

Decisions on the management of sheep system mating times, breed of ram, type of pasture grazed and retention of ewe lambs affected supplementary feeding costs as well as production of wool and meat. Production differences along with variation in prices received explained why the six sheep systems had significantly different economic gross margins and NPVs. The systems also had different risks in achieving economic returns. Higher economic returns were associated with higher risks of variable returns and lower returns with lower risk of variation. The earlier mated (February) and terminal systems did not perform economically as well as the later mated (April) systems, but were more reliable with lower risk. The winter lambing Merino system had the lowest gross margins and NPV, but also the lowest risk CoV and MIRR. Investment in additional lucerne pasture for early summer feed paid off with greater gross margins and NPV, but with highest risk CoV and MIRR that these economic returns may vary.

Significance

Modelling incorporating historical long-term price and production risk clarified the complex effects of sheep system management decisions on production and economic returns. The more basic gross margin analysis gave the same ranking of the different sheep production systems as the more complex NPV and MIRR. Potential economic effects and risks of variable returns can be understood by examining past variability in production and prices received (revenues) on gross margins then assessing expected risk of future variability.