Sheep farmers fail to capitalise on higher prices, EBLEX warns

Sheep farmers are failing to capitalise on higher prices, an industry body has warned.

Continued higher lamb prices could be masking inefficiencies in lowland breeding flocks which mean producers are not achieving the returns they could in the current buoyant market, says EBLEX, which has published an annual cost of production report.

A careful on-farm audit of business practices, including analysing labour and machinery costs, as well as keeping a careful eye on marketing to ensure the maximum number of lambs meet the required specification when sold, could help further increase margins, it says.

Figures published recently in the annual EBLEX Business Pointers costs of production report show the top third lowland breeding flocks having a positive margin, even after non-cash costs are included, of �6 per ewe, with the net margin before non-cash costs being �33.50 per ewe. However, bottom third producers are showing a loss of �50 per head despite the strong prices enjoyed in the 12 months to March 31 2011 – the period the benchmark figures are drawn from.

Physical performance has improved across the board, with more lambs reared, higher outputs and better returns per lamb sold – but there have also been significantly increased variable and fixed costs, eating into the better margins.

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“While some variable costs are largely the same, such as veterinary costs, in top, average and bottom third performers, for other inputs there is significant difference,” said Mark Topliff, EBLEX senior analyst.

Bedding costs for the bottom third performers are three times that of the top third, forage costs are nearly double and total cost on concentrates is 40% higher at �15.48 per head. These show areas where those performing less well can look to make efficiencies.

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“Looking at fixed costs, there is more than �50 per head difference between the best and the bottom performers. When you dig in to the make-up of this, it is in areas like power and machinery costs where we see the biggest difference: �9.10 per animal for those performing best compared to �20.96 per animal for those in the bottom third. Allied to this are the machinery and fixtures costs – made up largely of depreciation – which is �6.34 per head for the top third compared to �16.10 per head.”

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