On McDonell farm, the sheep are thirsty

On a blustery day, Duncan McDonell eased his cream-colored jeep through a rusty gate and bounced down the pasture road. A short distance later, he yanked the wheel to the right and edged up to a ravine slicing across his 3,500-acre farm outside Melbourne.

"Usually there is water in there," he said, pointing toward the dry gulch.

A drought across much of Australia is producing hard times down on the sheep farm.

The dry spell -- in some areas lasting three years -- has stunted pasture growth, forcing farmers to dip heavily into feed stocks and pare down flocks. It could take two years or more for the world's leading wool producer and exporter to rebuild its sheep population.

Although recent rain rescued farmers in Queensland and other northern areas, colder southern stretches lost out.

"Regardless of what happens, we can't expect an excellent season," says Campbell Curtis, Australian Wool Corp. economist.

The current sheep population is estimated at about 132 million. That's down from 136 million a year ago but not as low as the 131 million in 1978 (the lowest point in 20 years).

Wool production in the 1980-81 "wool clip" year is expected to reach 6.20 million kilograms ("greasy equivalent"), a reduction of about 3.5 percent from the year before.

Still, relatively high wool prices should soften the blow to farmers. Export earnings in 1980-81 will likely top A$1.6 billion, up from A$1.5 billion the year before. While the sheep industry doesn't dominate the Australian economy the way it once did -- the country grew up on the "back of the sheep" -- it remains a major economic force.

The industry was the largest export earner until the early 1970s. Today it is surpassed by wheat and some minerals, but still accounts for a healthy 8.5 percent of the country's total export earnings, Mr. Curtis estimates.

Like elsewhere, the clip will be thinner on the McDonell farm this year. Set on a series of eucalyptus-studded rolling hills, the farm grazes about 4,500 sheep. All of them are Corriedales, a large usually hornless sheep developed in New Zealand. Most of Australia's sheep are Merinos, a burly Spanish breed. By shearing time in October the number of sheep on the McDonell farm will rise to 6 ,200 with the addition of newborns.

Much of this strong wool will end up as tweed coats somewhere in Europe. Australia mainly produces fine wool, which is used in clothing. Most of New Zealand's clip, by contrast, is used for making carpet or coarse- wooled garments. Japan remains the chief buyer of Australian wool, followed by Western and Eastern Europe.

Like many Australian farmers, Mr. McDonell has learned not to put all his eggs in one basket. In addition to his sheep, he has some 470 cattle and grows wheat, oats, and lupines -- cushions against a poor wool year.

He has also invested in a nearby 240-acre farm. With his outside investments and penchant for applying business principles to farming practices, Mr. McDonell is something of a maverick. Yet he believes farmers today need to know their way around the balance sheet as well as the barn.

"If agriculture is going to survive, then those involved have to have the technical ability and the managerial know-how to cope," says the third generation sheep farmer.

Mr. McDonell expects his profits to be off 30 percent this year as a result of the drought. While a sheep usually yields about 12 pounds of (greasy) wool, this season it could be down to nine. Many of the McDonell's older sheep will be shipped live to the Middle East for slaughter.

Oil-flush Mideast nations have dramatically boosted their imports of low-fat older sheep in recent years, providing a bonanza for Australian farmers. But there is one drawback to cashing in on the Mideast market: it cuts down on flock sizes. At a time when the industry is trying to boost wool output, many farmers are shipping sheep off to Iraq, Iran, and Saudi Arabia.