Key points:

• Lowland breeding flocks in the sample of 49 producers (average 467 ewes) made an average net loss (before non-cash costs) of £13.43 a ewe in 2005/06.
• Only the top third achieved a positive margin at £5.62 (before non-cash costs) compared to the bottom third which made a considerable loss at £36.47 a ewe.

• Top third producers had nearly £30 more output per ewe than the bottom third. Higher output came through the rearing of more lambs per ewe and the sale of a greater proportion of finished lambs at higher prices compared with the bottom third of producers.
• Across the top and bottom third there is little difference in variable and replacement costs.
• There is greater variation with fixed and non-cash costs. Lower fixed costs have been a major contributory factor towards higher net margins with paid labour and land rental costs typically where the differences lie.
• Even including the non-cash costs of unpaid family labour, rental value of owned land and interest on working capital, top third producers still have about £26 a ewe less costs than the bottom third producers. One of the main differences was the high rental figure for owned land in the bottom third group.

• Despite negative net margins for the top and bottom third of producers there is still a significant performance difference of more than £55 a ewe, once all costs are taken into consideration. This continues to demonstrate the need to examine cost structures and output factors in the coming year.
  
  

  FINANCIAL PERFORMANCE 2005/06 [£/EWE]
  	Bottom third	Average	Top third
  Number of flocks in sample	17	49	17
  OUTPUT (£/EWE)
  Lamb sales after valuation changes	42.66	58.80	70.96
  Wool	1.18	1.45	1.64
  Total output	43.83	60.25	72.60
  VARIABLE AND STOCK COSTS
  Replacement costs	10.09	9.21	8.86
  Variable costs
  Total concentrates	5.02	6.98	8.92
  Other feeds	1.53	1.30	1.44
  Forage	5.31	4.59	3.83
  Total feed and forage	11.86	12.88	14.19
  Veterinary	4.87	4.99	4.84
  Bedding	0.23	0.50	0.63
  Other costs	3.28	3.32	2.90
  Total variable and replacement costs	30.34	30.90	31.42
  Gross margin	13.49	29.35	41.18
  FIXED COSTS
  Paid labour	18.27	16.29	14.01
  Power and machinery repairs	8.19	7.61	7.10
  Administration	5.82	4.33	3.03
  Property charges	5.14	4.71	3.50
  Land resource costs (eg land rent)	5.64	4.08	2.72
  Machinery depreciation and fixtures	6.79	5.73	5.17
  Total fixed costs excluding non-cash costs	49.96	42.77	35.55
  Net margin excluding non-cash costs	-36.47	-13.42	5.62
  NON-CASH COSTS
  Value of unpaid family labour	9.99	11.49	14.91
  Rental value of owned land	23.61	17.42	5.33
  Interest on working capital	7.06	6.92	6.77
  Total non-cash costs	40.67	35.83	27.01
  Total costs	120.97	109.50	93.98
  Net margin including non-cash costs	-77.71	-49.25	-21.38

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