Drought recovery transaction driven by data
A cattle trading deal valued at more than $6.2 million turned around the financial fortunes of one NSW farm business in just four months. Underpinned by data, the transaction including up to 2500 Angus heifers, not only recouped the losses from 2.5 years of drought, it proved the value of profitable genetics and the opportunities within the livestock sector.
When it comes to business, Nigel Kerin knows it is all about the numbers. Whether its breeding Poll Merinos or selecting Angus semen, the NSW farmer would be the first to tell you “data doesn’t tell lies”. After all, he and wife Kate’s farm business at Yeoval in the NSW central west has surged during the past decade, mostly off the back of genetic and performance data, combined with innovative marketing.
So, it’s no surprise that big data underpinned the couple’s most recent bold drought recovery plan. But this time the stakes were high – the numbers were big, the money was borrowed, and the heifers were to be bought, joined and sold within four months. Nigel was aiming for a fast and high turnover, and it worked. The strategy delivered a 47 per cent return on investment, net of all costs, in just four months.
It all started last October. “It took us six weeks to bring in 2500 heifers,” he said. “We started buying in October last year and were (artificially inseminating) in November. We sold them all on March 5. The turnover of money was very important because it was all borrowed money, including the cost of carry.” The sale of the in-calf heifers, via online platform AuctionsPlus, grossed $3,798,000 for an average of $2824 across 1345 heifers. This was in addition to other heifer sales via forward contracts. “It got us back to where we were financially at the start of the drought in 2018,” Nigel explained. “Financially, one trade that lasted four-and-a-half months repaired the financial damage that was done in 2.5 years of drought. The lesson here is Australia is an amazing place and there are so many ways of creating turnover in the livestock industry.”
Setting the scene for a sale
Planning for Kerin Ag’s drought recovery started long before Nigel and his livestock agent Todd Clemments purchased the first 1000 heifers last spring. During the drought, Nigel researched the market and consulted mentors. He wanted to know what class of livestock would deliver the highest return on investment once it rained again throughout Australia’s east coast cattle country. “It was without a doubt, black heifers, that were pregnant,” he said. “Then I thought, ‘what is going to make them special? We need something special for marketing’, so the decision was made to AI rather than use bulls and we choose to AI them to Millah Murrah Paratrooper and Millah Murrah Nugget, because the stud has a good name and both the bull’s datasets were excellent.”
The scene was set. The east coast female slaughter numbers remained stubbornly high at 4 per cent more than the level required for a herd rebuild. Nigel’s strategy was to make the most of the “emotion” surrounding the drought and restock, he knew those wanting to return to the cattle business would want the best. That’s why he targeted heifers from the top five Angus studs in the country – securing some of the most sought-after bloodlines – before selecting ABS sires Millah Murrah Paratrooper P15 and Millah Murrah Nugget N266 for joining. He even installed the help of Millah Murrah Angus breeder Ross Thompson to assist with “telling the story” of the heifers via social media.
“There was the most demand for Millah Murrah Paratrooper – big data sells,” he said. “It’s a very common thing, the bigger the data the more people pay for it. Cattle breeders are buying big data bulls. You can say it’s all about bloodlines but that’s not true. They buy off EBVS that’s what they are chasing. Additionally, Nugget has some of the best data in Australia on calving ease.” Millah Murrah Paratrooper P15 made headlines in 2019 when he was sold for $160,000 – an Australian Angus record, while in 2018 Millah Murrah Nugget sold for $54,000 and was the all breeds Australian record priced yearling bull.
Forward sale contracts with supermarket giant Coles, for any heifers that failed to get in calf, or those which weren’t suitable for his joining program – removed some of the risk out of the transaction. The contracts were for 30 per cent of the 2500 heifers, as Nigel anticipated a lower conception rate due to the animal’s high protein diet because of the abundant season. In the lead-up to artificial insemination, the heifers were gaining 1.8-2.4kg a day. “That’s how come we knew we would be battling conception, the weight gain and high protein and energy- it all adds to it,” he said. “But the economics were built in, the buy price, plus the cost of carry determined our break even and we knew what that was before we even bought them. Everything was calculated. If we never got one heifer in calf, we still would have made a really good profit because the weight gain was so high.”
The AI program ran across four weeks and involved 2200 heifers for a total conception rate of 61 per cent. CIDRS (controlled internal drug release) were inserted twice during this time and heat detection pads were used to detect estrus and those with a return heat were inseminated again. “We worked it out, there was 28,520 cattle that went through the crush while we were doing this program,” Nigel said. “The logistics of it, it’s like something you’d see in the feedlots in America.” Much like the rest of this carefully laid out four-month plan, Nigel was prepared to handle the big numbers in the yards and on-farm thanks to Kerin Ag’s autonomous cattle yards and its experienced team of stock people.
Five years ago, Kerin Ag was home to Australia’s first autonomous cattle yards. Designed to handle large numbers –they were built “with no expense spared” for the businesses steer trading enterprise and this infrastructure negated the need for human interference. The automatic crush, drafting gate and extensive laneways and paddocks close to the yards were crucial for the logistics of managing the cattle from delivery, through joining, AuctionsPlus assessments and on sale day.
Suggest to Nigel Kerin that his business move was “risky”, and he will refute. “You can call it calculated risk, I guess, but to me it wasn’t because my breakeven was way less than what I contracted to kill heifers for,” he said. “The ones we knew were going to be dry and we worked on 30 per cent being empty.” For him, the move to source 2500 heifers at the start of the east coast restocking frenzy was just “common sense”.
Nigel said the largest challenge was convincing his financial backers. “We weren’t overly blessed with coin after 2.5 years of drought, I can tell you that,” he said. “We got the money thanks to our business performance, our numbers and how we bounce back after dry periods.” The latter a testament to Kerin Ag’s business plan of “working with climate, rather than fighting through it”.
One example is its drought management strategy. “Only a certain proportion of our total stoking rate is made up of breeding,” Nigel explained. “The reason we do that is so we can match stocking rate to carrying capacity very quickly when things turn against us. The way we have our business structured at the moment, the biggest single thing that is working in our favour is climate change. Because when everyone else is still feeding, we are restocking, and we are able to get back into the market with not a great deal of competition. We are a land manager first, a livestock manager second. The guts of our business is grass. We don’t make money out of livestock; we make money out of grass. So, we just specialise in growing grass.”
When the joined heifers were sold on March 5 – the work wasn’t finished. Nigel said individual buyers purchased different types of heifers and some with different AI dates. These needed to be kept separate and across such as a large number, this was a logistical “nightmare”. A total of 82 lots of cattle were kept separate following the sale. The AgriWebb mobile management app made it “doable”, according to Nigel, while the farm’s infrastructure and staff were vital.
Thanks to this deal, the financial position of Kerin Ag returned to where it was pre-drought. Nigel insisted this was the result of “removing the emotion” from agricultural decision making and relying on the data – or numbers. “It might seem really complex to most people, but I knew I had the staff and the facilities,” he said. “I didn’t own a bull and I wouldn’t know the front end of the bull from the back end of a bull, to be honest with you. I don’t own a breeding cow and I never have in my life. You don’t need to be some whiz-bang smart person out of the beef industry to do what we have done. We are sheep cockies that’s what we do well. We turn grass into money.”