Commodities outlook 2015: Sheep

Sheepmeat production increased by an estimated 4% in 2014 due to increasing flock size and higher lambing rates.

It is possible that declining profitability in the beef sector could persuade livestock producers to shift the balance towards sheep in 2015, says Andersons director David Siddle.

“Although lamb prices have been very disappointing, lower feed, fertiliser and oil prices will reduce costs of production, giving some encouragement to producers going into 2015.”

With more than 35% of UK lamb being exported, the sluggish European economy – combined with the strengthening pound – is of concern.

See also: Sheep sector vision report sees bright future for lamb

“But we are optimistic of growing export demand, particularly to non-EU destinations,” says Mr Siddle. “Australia and New Zealand are targeting the Chinese market, which takes some pressure off the UK.”

Worryingly, many producers are making a loss, with costs of production of £2.10-2.30/kg liveweight compared to average prices of £1.75-1.85/kg.

“The vast majority of producers rely on support payments to achieve any degree of profitability,” he warns. “However, there are some who are making genuine profits, which is encouraging.”

The greatest difference between average and top-quartile producers is their fixed costs, with top producers often having 40-50% lower overheads.

“People making profits tend to have lots of sheep and minimal overheads – they are focusing on maximising efficiencies off grass,” says Mr Siddle. Producers whose sheep are a secondary enterprise should perhaps consider alternative options, such as a joint venture.

“There is often an over-emphasis on producing very high-quality lambs at the top of the seasonal market. Usually the price does not outweigh the high production costs. You may be better going for mid-range animals that are cheaper to produce, focusing on overall profitability rather than price.”

Outlook

• Growing export markets but exchange rates will be challenging
• Sheepmeat production likely to increase in 2015
• Costs of production have fallen but margins still tight

Business pointers

• Focus more on maximising production from forage and reducing overheads
• Where sheep are a secondary enterprise, consider joint ventures
• Low input often more profitable than high-output systems