What exactly is “fair value”

There is a current shortage of livestock here in The Karoo. I believe that this is generally the case across the country, well certainly South of the Gariep it is. Slaughter prices on C2/3 mutton are at a near all-time high at R 64/kg cwt (carcass weight) for short-to-medium skins while Dorper skins and pelts are at R 62/kg cwt (prices peaked at R 69/R 67 during August 2018). 
A2/3 lamb prices have floundered from R 83-R 81/kg cwt in August, down to around R 77-R 75/kg cwt at the moment. This may put downward pressure on the mutton price. 
I don’t believe these prices are due to new-found disposable income in the consumer’s pocket, but rather due to a general scarcity of stock. Demand is low, but so is supply. Should we see a spike in production, prices may come under pressure but current weather patterns seem to make this an unlikely scenario in the near future.

Current prices put the slaughter value of a ewe unit of 23-25 kg cwt at between R 1426 and R 1600, which is good money. This base value obviously will raise the bar in terms of breeding sheep stock value. As with fat stock, breeding units are also currently in short supply, and this combined with some really excellent prices achieved by breeding ewes at recent auctions, has sent prices through the roof! Of course the very good wool prices currently being achieved also add to the value of Merino and Merino-wool breed ewes.
I was recently offered a parcel of Dohne Merino ewes; ewes with lambs at R 4400/head and dry ewes at R 3000/head. This gave me reason to pause and wonder, what can be considered “fair value” for breeding ewes at the moment, and are these high prices reasonable and justified?

As a rule of thumb, one determines the base value of an animal equal to its slaughter value. You then append a premium to this value, taking into consideration various factors such as quality, breed or type, age, pregnancy status and (if applicable) length and quality of wool. This premium is then tempered by supply and demand, and can vary from 0% (in times of severe drought) to 15% or more (in times of low supply, and fait-to-good grazing conditions, such as we have at the moment). Lets run those numbers:

Slaughter value:
A mature (6T/FM) Merino ewe adapted to Karoo conditions will probably average out about 55 kg lwt (live weight) in body condition score 2 and carrying for arguments’ sake four months of 20 micron wool (about 1.5 kg greasy). If one takes the wool weight off, and uses the rough guideline of a 42% dressing weight, you are looking at a base value of (55 – 1.5)kg lwt x 42% = 22.5 kg cwt x R62/kg = R 1395/unit. Let us round it up to R 1400.  
Wool value:
A 55 kg Merino ewe should shear around 7-9% of her body weight at 12 months, so let’s say 8% of 55 kg = 4.5 kg per year, or 375 g per month. In our example we suggested 4 months of wool, so that is where I get my figure of 1.5 kg (greasy) above. The Cape Wools market indicator for 20 micron wool is currently at R234/kg (clean). Assuming a clean yield of 70%, this 1.5 kg of wool could be valued at (1.5 kg x 70%) x R234 = R 245 — call it R 250.

Add the two above values together, and you have a base value of R 1650/head for a mature 6T/FM Merino ewe carrying four months of good, clean fine-to-medium wool and in good body condition.
Premium values:
Now it gets interesting. What premium do we allocate to this animal for its breeding value? Factors such as type and perceived quality are subjective, others such as wool quality, age and pregnancy status are more objective. If we add a premium of 20% to our calculated base price, it brings us to the R 2000 mark. Then what values can one attach to a pregnancy status?

A crude way to calculate this would be to say, “Well, buying in pregnant ewes is saving me five months of time to getting them lambing”. This will get you a return on your investment five months sooner. Interest on your R 2000 dry ewe at 15% per annum, is R 300 or R 25 per month. Five months saves you R 125 of interest. But of course we know that you do not pay R 150 more for a pregnant ewe than a similar dry ewe. It seems to be more in the region of R 500. A higher twin component in the parcel will of course push this value up further, possibly up to R 750 per unit.

So, my evaluation of our example ewe would be R 2500 – R 2750 per head. And in practice I have found that similar ewes currently priced dearer than this do not easily off the farm.

From a ROI (return on investment) perspective, the buyer can look at within the first year from purchase, weaning a 30 kg lamb at an estimated value of R 1200 (30 kg lwt x R 40/kg) and shearing 4.5 kg of wool off her at an estimated value of R 720. A return of R 1920 (77%) on R 2500 before costs, which looks very attractive but of course this assumes zero mortality or loss to vermin or stock theft. Factoring in a 80% weaning rate, and a 5% mortality rate on the ewes themselves, this figure is more likely to be in the region of R 1600 per unit purchased (64%), before costs.

At the end of the day, market forces will determine what breeding stock will sell for. If a buyer is prepared to pay R 3000 for your breeding ewes, then that is what they are worth. Hopefully the above provides some insight into how one might go about starting to determine what your expectations may be when it comes to marketing your breeding stock.

Please do contact StockFair when you are looking to market breeding stock. We have expertise in this field, and can advise and assist in marketing.