The effect of interest rate on the profitability of finishing weaner stags : A dissertation submitted in partial fulfilment of the requirement for the Degree of Bachelor of Agricultural Science with Honours in the University of Canterbury [Lincoln College]

Abstract

With the arrival of the first European Settlers came sheep and cattle to New Zealand. Under New Zealand conditions sheep and cattle farming developed in its own way. Sheep were to become very important in New Zealand both domestically and as an export earner with New Zealand being known globally as the home of sheep. Sheep are a dual purpose animal producing both meat and wool. Until recently a large proportion of farm income came from meat but now wool is more important. Cattle can be divided into two classes, beef breeds providing meat and dairy breeds providing dairy products and meat as a by-product. Although deer farming only appeared in New Zealand in the 1970's venison and velvet have become important income items for many traditional sheep and beef farmers. This project aims to investigate the effect of interest rate on the profitability of finishing weaner stags. The recent variability of the interest rate farmers have faced led to this project being undertaken. The effect interest rate had on deer farming was not fully appreciated. However for the traditional enterprises interest rate can have a major effect on both the policy and its profitability. The very large costs involved when borrowing money to finance the development of a deer venture also make the effect of interest rate on profitability an important one. This is especially so if capital is a limiting factor, as it could be for many sheep and beef farmers. Finishing weaner stags was chosen over breeding hinds and velveting stags because venison production is increasingly going to be the main income earner for the average deer farmer. Venison has consistently given good returns relative to other farm products, and is likely to do so in the future. Velvet prices, while currently holding at a high level, are likely to be less certain in the future. Lyndhurst, Lincoln College's Mid Canterbury irrigated property was used as a case study farm. Currently running sheep (Coopworth stud flock) and bull beef, the farm has been 'converted' to deer for the purposes of this project. The project includes an analysis of the deer industry, a section on the setting up of a deer farm (both financial and structural) and a management diary. A Linear Programme (LP) has been developed and used to test the impact of changing interest rate on the profitability of finishing weaner stags. The effect this has on the trading policy is also investigated. The capital required to set up this farm as a deer farm has been is included externally to the linear programme to indicate the Internal Rate of Return for the conversion. Although the project refers to a specific example with assumed management ability and capital requirements, much of the work here can be applied to other situations in New Zealand.