Venison production systems - healthy gross margins

Venison production systems show healthy gross margins

Deer farming continues to stand out as an earner in rural New Zealand at present.

Returns from the country’s venison breeding and finishing options are robust compared to most traditional farming enterprises currently, although this needs to be viewed cautiously as key markets come under some pressure in the recessionary climate.

Southland farm consultant Graham Butcher from Rural Solutions has produced benchmarking data to update his 2008 comprehensive gross margin analysis, which rates current relative profitability across all major New Zealand farm enterprises.

This is an in-depth and balanced way for farmers and their financiers to objectively evaluate land use. Based on a Southland model, the analysis compares bottom lines by taking all of the direct expenses associated with each enterprise type into account. The assumptions, which have also undergone rigorous input from deer farmers, can be applied across New Zealand.

The most profitable land use options in this Southland-based system are the high powered early chilled season venison finishing enterprise at 25.2c/kilogram dry matter (kg DM) consumed (assuming peak season average prices are maintained at $9.00/kg), followed by typical Southland summer lamb trading, at 21.6 cents/kg DM consumed.

This is closely followed by the more conservative venison production options. The finishing weaner red deer option is currently returning a conservative 19.6 cents/kg DM consumed (at $8.50 average schedule and a $5.20/kg ingoing weaner cost). Wapiti terminal sire breeding and heavyweight early finishing is behind at 18.8 cents/kg DM, while red deer velvet at industry average production and seasonal averages around $61/kg is returning 12.1 cents.

Dairy is still viewed as the next most profitable enterprise behind deer farming enterprises, although comparisons are currently difficult due to the rapidly changing NZ dairy farm cost structure. An established dairy returned 15.0 cents/kg DM at the end of last year, and 11.9 cents for a recent Southland dairy conversion.

Bull beef is returning 9 cents/kg DM, and this was followed by dairy heifer grazing as the next most profitable enterprise in New Zealand as at June 2009.

Breeding ewes at 140 percent, 50 percent hogget mating offered the best sheep farming returns currently, at 10.9 cents/kg DM, then breeding ewes with no hogget mating followed by hogget grazing and store ewes at 8.4 cents, and winter lamb trading at 6.4 cents.

News welcomed by deer industry

Deer Industry New Zealand’s Producer Manager, Tony Pearse is pleased about the strong venison prices at present, but notes some caution about future returns. “It is important to be mindful of the economic pressure venison’s key markets are under.”

“However, returns are consistent and have shown steady growth in the last two years while markets have been expanding over the last five years, which has put venison in a position of demand and strength. Producers who have stuck with the industry should have justified confidence in the underlying enterprise assumptions.

“Sectors in the deer industry have been working together under the industry five year strategic intents which I believe is underpinning these positive results.

“An on-going reduction in supply, that appears to be accelerating at present, has also driven demand and procurement. This falling supply is helping to buffer markets as demand for some venison items come under pressure.”

Based on current costs, purchasing finishing weaners is a very profitable option for farmers at around $5.00/kg targeting the chilled season prior to December. At a $6.00 weaner price, and specialist early finishing ($9.00/kg average for venison) margins are still very healthy at 17.5cents/kg DM.

Mr Pearse is pleased this latest analysis reflects an increasing cost of purchasing weaners, estimated at 53 kg weaner hinds at $5/kg and 56kg weaner stags at $5.30/kg. “It’s particularly pleasing to see the trading market balancing itself with improved returns to breeders selling weaners, who have struggled for some years.”

About the analysis

Graham Butcher’s detailed gross margin analysis of sheep, beef, dairy and deer enterprises presents a return based on cents per kilogram of dry matter consumed, an accepted practice for comparing land uses. While it is a relative rather than absolute approach – individual farms’ costs will differ – it is nonetheless a good guide for profit.

Basing his assumptions on standard New Zealand farm models using Farmax™ and StockPol, the analysis presents relative profit objectively, comparing only the direct costs from each of the different production systems. Income is based on current schedules.

Costs of management, feeding and animal health that are inherently the same across enterprises are not included in the calculation.

This takes into account the current cost of direct expenses on stock, feed, animal health and management, and the capital costs of improvements specific to the production system, but not farm loans or drawings. It also gives profits from finishing and from purchasing deer with no conversion costs, then compares that with conversion factored in. The industry is working now on a sensitivity analysis around venison and velvet returns, and some of the key variable input costs, particularly trading values for weaner deer.

All of the comparisons are regionally based to ensure benchmarking is valid, but the conclusions from his Southland analysis can be applied across New Zealand farms in general. The analysis is a current snapshot based on current returns and expenses, but farmers also need to examine long-term trends and market volatility and the cautionary message reinforced by the current world recessionary times.

Gross margin analysis of New Zealand farming enterprises
Enterprise / c/kg DM consumed
Purchase weaner deer, peak season finishing (above average) @ 9.00/kg schedule and $5.20kg entry weaner price / 25.2
Summer lamb trading / 21.6
Purchase weaner deer, finishing (above average) @ 8.50/kg schedule / 19.6
Terminal Sire ( Elk wapiti) Breeding and heavy weight early finishing / 18.8
Purchase weaner deer, finishing, ( above average) with conversion costs / 17.8
Purchase weaner deer, peak season finishing (above average) @ 9.00/kg schedule and $6.00kg entry weaner price / 17.5
Velvet herd, red deer (industry average production) $72/kg average / 17.1
Terminal Sire crossbreeding & early finishing with conversion / 16.8
Southland dairy (established) (2008/09) / 15.0
Breeding Red hinds, and finishing progeny / 14.4
Breeding Red Hinds, finishing with conversion costs / 12.9
Breeding Red Hinds, selling weaners / 12.6
Velvet herd, red deer (industry average production) @ $61.50/kg average / 12.1
Southland dairy, with conversion / 11.9
Breeding ewes [140 percent, 50 percent hogget mating] / 10.9
Breeding Red Hinds, selling weaners with conversion costs / 10.5
Dairy cows, winter at 14 kg/$26 / 10.5
Bull beef, rearing / 9.9
Dairy heifer grazing / 9.9
Breeding ewes [135 percent, no hogget mating] / 9.8
Hogget grazing / 9.4
Bull beef, 100kg purchase / 9.0
Breeding ewes, store [135 percent, no hogget mating] / 8.4
Breeding cow [calving year 2, sell weaners] / 7.6
Winter lamb trading / 6.5
Breeding cow, finishing / 6.4
Autumn-purchase steer calves / 4.9

ENDS

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