One of the things in agriculture is there's access to new ideas, information and education. One of the things I think that you've really focused on is making sure you and Kate and others in the business are always exposing yourself to different ideas and being and challenging your own mindset. How important has that been and how do you see that playing out in agriculture? Is it important that people educate themselves I suppose?
We wouldn't be where we are unless we brought external people in. Because the problem with, if we never brought externals in, we would only know what we know. The problem with that is, we don't even know what we don't know.
What we've found with consultants, and this doesn't apply to neXtgen Agri, the more you pay, the more you listen.
If you're using a consultant or an advisor, and he's charging you nothing, guess what? All you do is fight and bloody argue with him for a whole day. The more you're paying an outside influence, the more you listen, and the more you respect them, providing, they actually practice what they preach, preach what they practice. There's a big difference. It's not a broad swipe of the brush across all consultants. The really good ones are worth their weight in gold.
If we go back to 2010, we brought an outside consultant into our business. We did that for 12 months. Once a month we'd meet and we'd go for a drive around the farm, do the farm tour, then come back and look at the business. His job was to keep finding the weak links in our business. We got back to the house, before he looked at the financials, he said, "I don't even need financials. I know what your weak link is at the moment." He says, "It's a lack of finance." I said “What the bloody hell is the lack of finance got to do with a weak link?.”
He could see, and this was 2010, we were in another one of these so-called one-in-50-year events. Well, they're not one-in-50-years. They're happening all the bloody time if you keep your eyes open.
He said, "What I see is a lot of grass being wasted and turning into cellulose and getting no economic value out of that." Right at the time, we just bought a new place, we were maxed out as far as our equity position. I could not borrow any money through the traditional big four banks for borrowings on livestock.
As it would have it, that week in the land newspaper Landmark started advertising for livestock finance. Rang them up, they came down, did the interview, did all the paperwork and I mortgaged against our breeding units. I'll never forget this, the dude rang me up about 10 days later and he said, "Yes, we're finished doing your application, Mr. Kerin, and you've actually got access now to $5.3 million of funds." I went, "Shit mate, I don't need 5.3. I don't need anywhere near that."
Well, we got the money, we got the access to it and six weeks later, we'd spent every single cent of that borrowed money. We got contracts for all those animals we bought. We got the contracts, then we went out and brought the animals.
It was then that I started to realize, after going through that period, that these one-in-50-year events are so easy to make money in. That was in 2010 and we’ve had 3 since then.
When you look at what our gross turnover is in those 3 years, for those say 10 years, we could nearly not go farming for the other 7 for what we made out of those 3 years.
That's a bit of a revelation about how you're managing your grass business. Because when you looked at what we were generating in those 3 years out of 10, in these so-called one-in-50-year events, we were going from gross sales of $2.4 million, $2.7 million, $3.2 million to 2006 where we did $11.8 million of sales. We would have thought that totally impossible only two years earlier.
What I've worked out is, climate change and fear is actually making it easier to make money out of turning grass into money. We have a drought, we come out of the drought, we go into a record year, like this year, 2016 and 2010, the restock market goes through the bloody roof, but so does the forward price. They're symbiotic together, if you can get your head around how to match it.
We are actually having a reasonably stable income, where we can play a massive amount of catch up from lost income from the last two and a half years.
Our ewe prices, well we've got crossbred ewes making $470, cows making $3,000. But I clearly remember back in 2016, when I was visiting ram buying clients that run cow herds, you'd say to them, "What do you reckon that cow-calf unit's worth?" They puff their chest out and go, "I know exactly what that old girl's worth, she’s $3500." I'd actually say to him, "Why don't you sell the three oldest age groups out of your cows?" They'd look at you as if you had 15 heads, because I'll bet you within six months you'll buy that same cow for half price, and guess what happened? It took six months and the ass fell out of that market, driven by drought.
You could have brought the same $3500 cow back six months later for half that price driven by climate. But one of the one-liners we have in our business, to keep our feet on the ground, is when we're driving around our beautiful breeding cattle-I asked myself the question “Based on today's value, what is that cow and what is that ewe worth in the paddock?”
Right now, I know I've got $350, $400 ewes running around in that paddock. I ask myself the question, "Would you pay that for those ewes, or for those heifers or for those cows or for those black steers?" If the answer's no, then they are too dear to own.
You better bloody sell something, because in the livestock game, the cream rises to the top in time. And when that cream gets to the top of the barrel, you better rake it off and take that cash and put the cash in the money bank and put some grass back in the grass bank. It's as simple as saying, "If they're too dear to buy, they're too dear to own. You better take some cash."
That keeps our feet on the ground by making sure we don't fall in love with animals at record prices, you've got to take some of that cash off the top.
Your wealth is not in the amount of cows you own or the amount of years you own, your wealth is actually how much money you have got in the bank and it's simply called cash.
I think it was a good point from Ken Solly, solely that a lot of people farm for a long time and don't actually build wealth- which isn't the end game. I'd love to know a bit more about your data and your business to help manage all those processes. Like being very aware of those prices around what's my cost of carry, what it cost me to grow all those trades. That's a really important part of how you manage Kerin Ag.
We do not make any decisions based on emotion. How do you know you actually made a decision, or whether it was based on emotion or whether it was based on what they call the vagus nerve, which is gut feel? The vagus nerve, which is inside your gut will always force you to pick a pen, paper, and a calculator up. If you've made a decision about the future, and you haven't picked up a pen and paper to do it, I can guarantee it's the wrong decision. It's one based on emotion and emotions are very, very good at telling lies, they chatter in your head to make you think you're doing the right thing.
And, confirming your previous biases.
Oh, confirming your absolute belief of BS. It goes back to education again. I did the KLR Marketing School, probably 15 years ago. I've done that school four times now and every time I do it, I cherry-pick something really good out of it that I didn't hear in the previous three schools and I make it better and better and better.
Everything we do goes through a quick spreadsheet which takes me two minutes to do. That gives me a number and all I want to do is look at a number, one number, and in a box it will have DSC return in dollars, annualized.
We won't enter into a trade on paper unless it's doing about $120 a DSE, annualized. Everyone will be sitting there going bloody hell, who's making $120 DSE annualized?
Well, I don't either, but the thing is, it's also got to do with all the animals you breed yourself. It's the same thing, I'll put animals that we breed ourselves through a spreadsheet to work out if they're too dear to own, and if it says they're too dear to own right here today, I'll sell them, because there's more money in the restocking game at the moment, as far as quick turnover. It's hard to do better than what the restock markets do at the moment. Everything comes back to a DSE return. If it won't do $120 DSE annualized, I don't touch it, I'll just stay out of that trade, I won't go near it.
That's how we don't get into trouble. But how do you know what the sell price is when you're using a spreadsheet to work out if it’s a good trade? Well, you have to know what your forward price is. That's pretty easy.
Right now if I was to get a forward price for lambs, it'll probably be $7.80, maybe $8. Well, I'll go and put $8 in there as my sale and if it works really well, I'll go and ring up, take a contract out for the amount of lambs I want, three or four truck and trailer units, then go and buy the lambs. Because I know what I'm getting for them and that tells me what I can pay for them.
One of the things that will be very clear across various parts of your business is the power of genetics. Obviously, you've got the ram breeding business, and then you buy in lambs and other stuff all the time. How much difference do you see in genetics across all those different sources-- What's your pattern recognition for genetics?
You’ve got no idea of how stupidity is killing people's livestock businesses, sheep or cattle. We brought a big run of black heifers, mostly out of southern New South Wales and Victoria. They come here, they get inducted, they're recorded- where they come from, who they are, what they are.
The same thing with the lambs, when the drought broke, a property we have on a leased property, we put 14,000 lambs on there all off Auctions+, so we knew their breeding. Some of those lambs were ready to get back on the truck in eight weeks. Some of them were still sitting there 15 weeks, nearly the same weight as when they came in.
I'll pick on the Merino industry because that's the industry I'm in, I'll leave the terminals alone. There's just as much variation in the terminals and composites as the Merinos, but I'll talk about Merinos.
If I'm on Auctions+, and I see bloodline I know breeds their own rams, or doesn’t use genetics- I won’t touch them. Those breeders, they think a big adult sheep will have a big, fast-growing lamb. Nothing could be further from the truth.
The way the modern Merino is now, well the ones that are using data, they're hitting adult weight at nine months, 10 months and that's what we're seeing in all these restock lambs from Western Australia, South Australia, Victoria, right across Australia. The difference can be up to 30% extra carry time between a lamb bred without data and a lamb bred with data.
There's certain bloodlines of Merinos now that I'm just locked into that I'll buy and there's others, I don't care how cheap they… are because I'm selling grass and I've got to work out where's the best place to sell that grass to, and slow-growing genetics kill turnover.
Tell me what business you know that's got nothing to do with agriculture, that can survive and grow without growth? Growth is what stimulates all businesses. In the animal industry, if we don't have fast growth, we won't have a bloody business. It's driven by growth, by fast turnover.
What's happened with the revolution of ASBVs and data and genomics, where we can pinpoint things. We can grow a stack of wool, we can still have high fertility and shitloads of early growth in a Merino. If anyone wants to argue with me and say, "Oh, you're full of it." I can show you all the data of all the different bloodlines of sheep that have come in here, and what they've done when they get weighed and weighted and weighed, their bar graph on the true test monitor shows how they actually grow. Some grow fast, and some grow slow. And the ones that grow slow, kill turnover.
We had one particular mob this year come from South Australia. We just couldn't believe how they would not grow, all the other lambs we were selling B-doubles that were coming back at $280, $290. We had B-doubles coming back at $310 a head average. There were a lot of B-doubles that got a 50 cent a kilo discount because there were so many over 32 kilos, but it didn't worry me. Because they whacked the weight on that quick, it didn't hurt me to get a 50-cent discount.
But then there were others..these carcasses, we had carcasses coming back at 36 and 37 and 38-kilo average. There was one particular line of sheep. They all come in about a four or five-week period, and these were the last ones to go, and they were 22.3-kilo carcasses. Same feed, same canola, same fertilizer regime, same everything just simply shit, slow growing genetics. And that killed us on that trade. We lost a stack of money in that particular line of sheep.
I guess one of the things that becomes very visual in your business is genetics. Whereas in most sheep or cattle breeding businesses, where you are all breeders and you're not doing any trading, you never get to see that you might be farming those slow-growing genetics. You have no idea because you've never had anything else so you just assume that's how sheep do on your property.
I know that in an article with AWI you talked about in the cropping game, you'd never keep the same cultivar that we had when your grandfather was farming.
It is amazing how incredibly wealthy this sheep industry is because we can still be in business with 50-year-old genetics. But if you want to put an absolute rocket up the bum of your business, whether you're in the terminal composite game or whether you're in the Merino game, you make that shift where it's data and technology that's driving these animals. Not traditionalist thinking. Because that's just an emotional bullshit chatter in your head that you've been feeding yourself, and more importantly you have fed it into the next generation.
I can't get over the amount of people that are in the sheep game under the age of 40, where their father's 70-odd, and all I hear is their father talking through their lips about genetics and I'm going, "Geez, you poor bugger, you don't even know what you don't know."
It's not until you actually start buying in different genetics, and you record that using technology, where everything starts to fall into place about how far we've come and how quickly we've come with modernizing genetics in all sheep breeds in Australia and New Zealand.
And you blokes now having a crack of footrot. We've had a hundred-odd years probably to try and get rid of footrot using science and technology while we never looked at actually using an ASBV type method of breeding the crap out of sheep- as in footrot.
That's massively powerful and that's obviously what I get to do for a living is see that power. Just this week I've been around folks where things like dag, and we're having a bit of a dag prevalent season in New Zealand, yet there's sires out there which all their progeny are clean. There's things like that, which if we allow ourselves to think a bit differently and use the data we can really change the way the sheep look and therefore how easy it is to farm and change that profit equation.
Nigel, I guess in life, there's a balance of luck and good management. If you were to sum up your career to date in farming, how much do you reckon was luck, and how much is making the most of opportunity?
I don't think there's any such thing as luck. I think where the money is to be made is to bring outside people into your business and filter what's useful, what’s really good, and then quickly multiply it.
I think the five Ps. Prior Preparation Prevents Piss Poor Performance.. Managing a head of time, all the time.
I think the one thing farmers have really got to get their head around, if they want businesses that are going to thrive, they have to realise, you don't own a farm, you own two separate businesses.
You own a real estate business and you own a production business.
Whether that’s growing sheep or cattle, pigs, chooks, turkeys I don't care. It's a production business. That real estate business will grow whether you get out of bed or not in the next 12 months, and this is one of the things that keeps my head in reasonable shape when we get really tight years and drought years. We have this asset base called land and it just keeps appreciating whether I get out of bed or not.
Then we have a production business, and it's not until you get out of bed and go and farm that you actually have a chance you could go backwards. What I see is a lot of businesses do have a backward period in their stage of growth but most of it's based on making decisions from emotions. I don't see it so much in the grain industry but I definitely do in the animal businesses because there is a lack of great consultants in the animal-based production businesses, to hold hands through change, and that's a really, really sad thing that exists very much in Australia.
It might not be so in New Zealand but in Australia, there are all really good people in the animal production businesses that you can go and bring into your business to hold your hand through change, or just to keep you going to where you want to end up at. I don't think luck's got anything to do with it at all.
You can’t be in the black until you’re in the green. You can’t force profit into a business.
Where I really get shitty is a lot of consultants want to flog the last blade of grass on your farm, into an animal stomach, to make money out of it. That was a really good thing to do when my old man was, say, the boss. He had a very stable climate, we don't have a stable climate now. It seems to be dancing around everywhere and what seems to happen with our climate the last 15 years, we have extreme events, which are very short-lived and happen really quickly. You've got to capitalize on them while they're there, they can be really dry periods and they can be really wet periods.
We need to work a system out in our farming businesses of how we capitalize on those really wet periods and make money whilst there to keep that grass in production mode rather than let it go into reproduction.
You simply cannot force profit into a business, it has to happen organically. One of the things with that is, you can't be in the black unless you're farming in the green. I mean you've got to be fairly environmentally conscious of what you're doing, with your landscape and with your grazing.
The days of burn, bash and bury, well I wish you luck. Because it'll only be that real estate business keeps you in business. When you've got something that appreciates at 7-8% a year without you getting out of bed, let me tell you, you can make a shitload of mistakes in this business and this business keeps you in business because it's called change in equity, where you can go and borrow more on your overdraft to keep you supporting this business. Which is one a lot of people keep making bad decisions with. And they blame it more on climate than their bad decision making or more importantly, a lack of decision making.
Excellent. Thanks. Thanks, Nigel. I think we'll wrap it up there with-- We're getting close to an hour and that's about-- That'll be a record I think. We better wrap it up, but I really appreciate your time, there’s great concepts there and fantastic to hear the season that is occurring for you, and great to see that you'll make the most of it as you always do. Thanks for your time.