An expert view on potential for making profits

24 July 1998

An expert view on potential for making profits

Whats the financial outlook

for producers this year?

Independent sheep

consultant Lesley Stubbings

gives her views on the

potential for profit, while

ADAS and Signet invite

producers to take their costs

along to Sheep 98 for a

troubleshooting session

INCREASED ewe premium and falling concentrate costs are likely to be offset by the lower wool price, reduced lambing percentage and greater use of feed, meaning flock margins are likely to stay much the same this season.

Last year – the 1996/97 season – gross margins for commercial sheep flocks fell by 17-21%, depending on the system. Thats compared with the previous 12 months for flocks recorded and costed in my group.

This will come as no surprise. The collapse of lamb prices in late 1997 and the first quarter of 1998, when prices were 41% lower than a year earlier, meant many producers became fairly despondent.

But the fall should be kept in context. The BSE crisis kept lamb prices high throughout 1996 and into the spring of 1997, leaving producers with significantly improved gross margins compared with 1995/6.

In truth, we need to view 1996/7 as an anomaly because of the effect of the BSE crisis, and look back to previous years to put this coming years financial results into perspective. Comparison on this basis shows a much more modest fall in margins last year – about 8% – which is due to a lower ewe premium payment.

This year, margins are forecast to remain much the same. Thats based on predictions which include market trends to date and a predicted ewe premium of £16 – not the current estimate of £18 which is probably optimistic given prices in the second quarter of 1998.

Lower wool prices and a fall in replacement values of £5/head for shearlings have been taken into account in calculations. Also included is the assumption that lambing percentages will return to more normal levels in 1998 compared with much higher performances recorded in 1997.

On the positive side, there has been a significant reduction in concentrate feed costs over the 1997/8 winter. In general, prices have fallen by 17-20%, depending on quality, which has had a positive effect on variable costs, particularly for those flocks greatly reliant on purchased concentrates, for instance, January lambers.

However, it is also accepted that some of this saving in feed costs has been cancelled out by bad weather this spring, meaning a lot of producers used more concentrate, a factor which has been included in predictions.

The table shows the range predicted for the four basic systems in the UK and the variation this represents compared with last year. These are averages of flocks which are recorded, and individual performances will vary considerably.

&#8226 Lowland flocks – an increase in margins, particularly for producers creep feeding who finished lambs in May and June who will see margins boosted by 10% or more. Even those selling lambs now are doing well as prices hold up due to minimal marketings. Those who traditionally sell a significant proportion as stores are likely to see the lowest margins.

&#8226 Early lambers – a decrease in margins predicted because the Easter trade failed to materialise in 1998. Those lambing in the latter end of January will have better margins because prices started to rise in May when they were marketing. Worst hit are those who lamb earliest, catching the late March and April market.

&#8226 Upland – a slight fall forecast due to store and breeding sheep price falls. This will however be extremely variable because flock systems in this category are diverse.

&#8226 Hill – an increase is forecast compared with last year which is simply a reflection of the higher ewe premium. These flocks are dependent on direct subsidy payments and the market affects them through its effect on the SAPS payment level. In 1998, direct subsidies will account for almost 75% of their gross margin.

Flock margins are likely to remain much the same this season, predicts Lesley Stubbings.

Predicted gross margins & change on last years levels

1998 predicted % change

gross margins from 1996/7

Average Range (£/ewe)

Lowland 45 42-48 +4.5%

Early 41 38-44 -3.5%

Upland 47.50 42-49 -5%

Hill 41.50 38-44 +8%

*Source: LAS costings by Lesley Stubbings

Talking sheep

Seminars where leading speakers tackle topical issues.

11am-12noon Lamb marketing

The role of producer groups in the future of lamb marketing – Arthur Haddrell, Tesco

Adding value to secure your lamb market – David Croston, MLC

12.30pm -1.30pm Managing hill sheep for profit

Making the most of your hill grazing – Arthur Davies, IGER

Optimising output from the hill sheep flock – Brian Merrell, ADAS

2pm-3pm Production strategies for the future

New Zealand messages for the UK sheep industry – John Vipond, SAC

Producing lambs at lower costs – Neil Pickard , ADAS

See more