Plan To Survive

The Mirambee Story

John Knaggs runs Mirambee Feedlot near Dubbo in central-western NSW. For years, drought has plagued the business, which needs food, water and fresh young cattle to keep producing the stock that keeps clients such as Woolworths happy. Every day Knaggs must assess the weather and make educated guesses about buying cattle and feed at prices that will keep Mirambee profitable.

Mirambee, now a $10-million a year feedlot business, had humble beginnings in the early 1970s. The owner of a farm that Knaggs was share-cropping asked if he knew anything about feedlotting. He didn’t but they built some yards and began feeding cattle for other farmers. Their stock varied between 500 and 3000 depending on the weather.

Knaggs’ main client is Woolworths: he contracts three months in advance to send them about 150 cattle per week. That usually works well, but he can miss out on big profits if the weather changes unexpectedly. He says: “Last year, it rained in mid-June. Cattle prices jumped 40¢ a kilo overnight.” For 150 cattle a week, each weighing about 350kgs purchase weight, that works out to weekly missed revenue of about $20,000 during the contract period. Ouch.

The Challenge

The main challenge is to maintain profits and sanity in a seven-day-a-week industry that is so vulnerable to the vagaries of weather. Knaggs’ solutions have lessons for any manager in a highly competitive, intensely variable business.

The Solution

First, accept what you can’t control: the weather. Knaggs says he gave up drinking at a local pub that is popular with farmers because the conversation centred on stock and grain prices and the weather. He found it psychologically draining to discuss - and fret about - farming at work and after work. He says: “Your two major inputs are buying the right sort of cattle at sensible prices and as much feed as you can store when prices are low. They are tied in with supply and demand, which is caused by mother nature. We can’t control that.”

Second, run your business like a futures trader. A key task is to keep enough inventory of feed to ride out price fluctuations and buy inputs - cattle and grain - at the lowest possible price. Knaggs grows less than 10% of the feed required for Mirambee, which means he must be acutely attuned to changes in weather and grain prices.

The timing of cattle and feed purchases is crucial to running a profitable feedlot. He can stockpile about 2,000 tonnes of grain on the farm and he has to plan the purchase and storage of the other 10,000 tonnes required each year. He forward contracts purchases of some of his grain, hay and other commodities, locking in a price for delivery later in the year.

He says: “There are times, like at the moment, where I’m playing a bit of cat and mouse. Barley prices are up because of the drought, but they’re not jumping in leaps and bounds. I’m hanging back, using some of our stockpile. If it rains, prices will settle back. If it doesn’t rain, they’ll go sky high.” Knaggs also buys lighter than normal cattle in advance when feed is available in the paddocks to grow them out. “That gives you a few up your sleeves to even out prices.”

Third, stay sane and build in holiday and recreation time. Knaggs says he can’t tune out unless he gets away from the farm. He has an arrangement with his wife to have a boys’ night out each Friday with his mates. She does the weekly shop while he goes to the golf club to socialise. “After a few beers we tend to grow ten feet tall, bullet proof and become experts on whatever sport is on the TV.” She picks him up later. He plays tennis on Thursday nights and golf some Wednesday afternoons and gets away for a couple of holidays and one conference each year.

The Result

Despite drought conditions, Mirambee increased its profit margin by about 10% last year and the market value of Mirambee has almost doubled in the past four years. Higher fuel costs have cut profits this year. Knaggs has stayed sane and relaxed during one of the toughest times in Australian agriculture.

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