Some say the only thing you get looking back is a sore neck. Not RCS Senior Advisor Nic Kentish. In this article, he takes us back to the Australian wool boom of the 1950s for a whip of perspective and guidance.
Is money made round to go around, or flat to stack?
When I asked my folks to recall their memory of the 1956 wool boom that occurred as they left secondary school, they had little recollection of it being halcyon days. As children of the war era, perhaps they were still struggling with a hangover from the Great Depression, as their parents probably were, too.
During that time, a 180-kilogram bale of wool would have reportedly bought you a Holden Ute or paid for a year of boarding school education. That suggests that wool was once worth what would now be an eye-watering $360 per kilogram.
Then we need to consider their costs to produce that kilo of wool, with 1 pound in 1956 equal to approximately $40.50 in 2022. According to The Bulletin of 1956 reporting on the Royal Adelaide Show results, 30 Collinsville rams averaged 647 pounds each or $13,818 in 2022 money. Shearing that year cost 7 pounds 9 shillings, and sixpence per 100 sheep or $301 for 100 sheep in 2022 money according to Vic Govt Gazette.
Of course, these are very rough comparative costs with today’s seed stock and labour, but they are astounding figures even with some give or take. It draws me back to the old timer’s lament–is money made round to go around or flat to stack?
“When we look into the margins that 1956 wool growers could return, they were nothing short of phenomenal.”
When we look into the margins that 1956 wool growers could return, they were nothing short of phenomenal. Play that forward 65 years to today’s wool, meat and grain markets, and we can see that even in current boom times, margins are still much slimmer than they were back then. Technological advances have driven yields in grains, and prices are right up there, all driving an excellent gross product. But the gross margin is a different story.
Wool’s gross margins are decidedly slimmer now but never write them off. A turn up for the books could be just around the corner if oil-based apparel is its competitor. And Kiwi shearers come back. Beef gross margins are good primarily because of restocking demand on the back of extraordinary recent seasons in much of NSW and Victoria. Similarly, export meat prices drive gross lamb margins, which seem destined for abalone territory!
The predictive headlines for farming are enough to make the most conservative farmer optimistic. I mean, if you’re waiting for an indication from the meat market that price and demand could get even better, I wouldn’t doubt it could. But that said, the beef and lamb market has never been higher in real numbers, so the laws of gravity could well kick in at some point.
A substantial component of farm profitability lies in the gross margin, turnover and overhead costs incurred by a business. When we boil down the equation, it looks thus –
(Total units produced x Gross margin per unit) minus Overhead costs = Earnings Before Interest & Tax (EBIT).
No matter how you look at it, now’s the time to keep a close eye on the cost of production. Our suppliers are looking to share in the profits made from the paddock. If ever there was a good time for them to put up prices a little or a lot, it’s now. Sometimes we can afford to spread our farm profit around, and sometimes we need to use it to build reserves. Reserves or retained earnings see us through lean times. And sure as death and taxes, lean times will come again.
“No matter which way you look at it, now’s the time to keep a close eye on the cost of production.”
Here’s my two-bobs worth. Explore ways to achieve a good EBIT. Investigate all the possibilities for your business to remain highly functional in the face of rising input prices. Nitrogen retention in crops, phosphorous liberation in pastures, improved desirable plant populations on each hectare, catalytic input stimulation, better lamb survival, optimal calving dates, selling price at farm gate, highly functional livestock rumens, soil water retention. These are some of the issues we can address within our management to give us higher EBIT results and better firewall our businesses to the impacts of uncontrolled expenditure. And when all that’s done, plan to put some reserves away. If you want to learn more about how to improve your EBIT on-farm, consider one of our courses on business, livestock and land management.
Some of those 1956 wool cheques remain framed on farm office walls around the country. Perhaps we should similarly frame the Account Sales from our agents to remind us in another 65 years what these times were like…and pin a note to the back describing how it helped our life on-farm. That, too, would be eye-watering.
Author:
Teacher, Advisor, Facilitator and Coach
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