Australia: Sheep producers feel fodder cost pressures
This week, analysts explore inputs for Australian sheep farms.
The major input costs
Australian sheep farms have average annual cash costs of around $286,000, making them the least cash-intensive of the broadacre farming sectors. However, while sheep enterprises generally operate with lower overall costs, they can become highly exposed to rising fodder costs during dry years. In 2019–20, sheep farm cash costs rose to approximately $338,000 as drought conditions increased feeding requirements.
Across sheep farms, the four major input categories – fertiliser, fuel, freight and fodder – account for around 23.7% of total cash costs, with fodder making up 11% of this. In drought years, when producers become increasingly reliant on supplementary feeding, the share of costs attributable to these “4Fs” can rise to 32–33%. This highlights just how sensitive sheep enterprises are to changes in fodder prices and availability.
Mixed enterprises spend more on fertiliser
Fertiliser expenditure on sheep farms averaged around $16,000 last year. By comparison, mixed farming businesses running both sheep and cropping enterprises spent closer to $95,000. Sheep-only enterprises therefore have relatively low fertiliser requirements, but mixed farms – which are common throughout Australia’s sheep-producing regions – carry significantly greater exposure to fertiliser price movements.
As a proportion of total costs, fertiliser accounts for around 5–6% of sheep farm cash costs. This is slightly higher than cattle enterprises due to the prevalence of mixed farming systems.
Fodder causes significant cost pressure
Fodder remains one of the most significant cost pressures for sheep producers. Sheep farms spent an average of $30,000 on fodder last year – less than the $42,000 spent by cattle farms, but substantially higher than the roughly $8,000 spent by cropping farms. Many mixed cropping enterprises with livestock tend to have lower fodder costs as they can retain feed produced on-farm.
Fodder costs accounted for around 10.5% of sheep farm cash costs last year. However, during the wetter years between 2021 and 2023, fodder represented only around 4% of total sheep farm costs. The recent dry conditions across southern Australia, particularly in Victoria and parts of SA, have significantly increased supplementary feeding requirements and pushed fodder costs sharply higher.
Fuel and freight costs
Fuel expenditure on sheep farms averaged approximately $13,000 last year, compared with around $47,000 for mixed farming operations. Fuel represents roughly 4.5% of sheep farm cash costs – below the broadacre average of 6.4%.
Freight costs remain relatively modest for sheep enterprises, averaging around $9,000/ year (3.1% of total cash costs). Of the broadacre sectors, sheep farms are among the least exposed to freight costs.
What does this all mean?
While sheep farms generally operate with lower overall costs than other broadacre enterprises, they remain highly sensitive to movements in the major input categories of fodder, fertiliser, fuel and freight. In total, these costs account for nearly a quarter of all sheep farm cash costs – slightly higher than cattle enterprises.
Fodder is the largest driver of cost volatility. In years when feed is expensive and difficult to source, up to one-third of sheep farm expenditure can be tied to the “4Fs” alone. With dry conditions continuing across parts of southern Australia, sheep producers are already entering 2026 from a higher cost base than in previous years. If crop production tightens further and feed prices rise, these pressures may persist well into 2027.
The positive for sheep producers is that sheep and lamb prices are currently sitting near record highs. While costs have increased substantially, strong livestock prices are helping support producer margins and offset some of the financial pressure.
Recent interest rate increases
Since the recent cattle cost analysis from MLA market analysts, the Reserve Bank of Australia has also increased interest rates, adding another layer of cost pressure.
Interest expenses on sheep farms average around $21,000 per year, accounting for more than 6% of total cash costs. Any further increases in interest rates would therefore have a material impact on sheep producer profitability moving forward.
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