Sheep producers suffer from “wafer thin” margins

Sheep producers continue to operate on “wafer thin margins” despite the recent rise in lamb prices and reductions in a number of input costs.

According to data presented to the recent EBLEX/BPEX Outlook 2009 conference in London, lowland flocks in England and upland flocks in Scotland made a negative net margin every year from 2003 to 2007.

The current situation was more positive, explained Stuart Ashworth of Quality Meat Scotland, pointing to the tighter market and the beneficial impact of the weak pound.

For example, the number of breeding sheep in the UK had dropped 14% between 2004 and 2008, and was 6% down last year alone. Total production was therefore forecast to fall by 6% to 308,000t in 2009.

The recession had led to a drop in sheepmeat consumption towards the end of last year, he added, but this was after eight years of steady improvement.

The currency situation had been a real boon, Mr Ashworth explained. For example, a farmer looking for £65 for his export lamb in January 2007 would have needed to achieve €95 on the sale. This year that had fallen to just €67, helping UK lamb undercut the competition.

This was one of the main reasons finished lamb had topped the £4/kg dw mark this week, he said.

At the same time, imports were less of a threat, due in part to lower sheep supplies in the southern hemisphere. While it was expected that New Zealand would still fill its quota to the EU in 2009, the currency position meant UK lamb was still more competitive.

Meanwhile, inputs such as feed and fertiliser were getting cheaper. Whereas in August 2008 fertiliser had been 161% more expensive than the year before, by December 2008 it was 112% more expensive than the year before.

Against this background, Mr Ashworth forecast that 2008 LFA ewe flock net margins would be about £2/ewe in the black, while for the top third of sheep producers they would be about £18/ewe.

But there were a number of reasons to be cautious, he added, including the fact that consumers may well switch to other meats as the recession continues, and that currency could swing back the other way.

For more on this story and a Farmers Weekly comment on this story, see Phil Clarke’s Business Blog