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Rash cost cutting not always best way to improve sheep producer profits

Sheep producers reflecting on lower margins from this year’s prime lambs should not make any rash decisions about cutting costs in an effort to try and make savings. Jeremy Hunt reports.

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Sheep consultant Lesley Stubbings believes random tampering with inputs could end up having a serious impact on flock performance.


She says: “Winter months are a time when flockmasters look back over the past year and, after the lower finished lamb prices of 2015, there may well be a temptation to try and identify areas of the business where savings can be made.


“But taking a sledgehammer to inputs in an effort to offset lower returns could backfire.


Before any input reductions are even considered it is essential to base all deliberations on flock costings and to know precisely how much lamb is being produced per hectare.”


Because there are still so many sheep flocks being run without detailed costings, she believes random management decisions to pare back on lamb production costs cannot be made rationally.


“A lot of flocks still do not have the management information on which to make sensible decisions concerning costs. I cannot stress enough how important it is for every sheep producer to know exactly what it is costing to produce each kilo of lamb which leaves the farm.


“And this equally applies to both prime and store lamb producers. Hill flocks selling most or all of their lambs as stores still need to know what it is costing them to produce those lambs – and to have a cost per kilo figure. Armed with this information – across all flock types – informed evaluations and decisions on costs can be made.

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Inputs

“It is vital a producer knows how much each kilo is costing to produce and only then can decisions be made as to whether the benefit of reducing inputs can be quantified in its impact on lamb output.”


Ms Stubbings says it is often the case a producer will decide to look closely at his ‘vet and med’ costs, with the intention of making savings.


“Vet and med costs are usually the single smallest variable cost, providing a lot in terms of their value to management and flock output – but producers need to know exactly what benefit they are achieving from those costs and be able to quantify how the flock may be adversely affected if they were reduced.”


She believes that all too often when vet and med costs are reduced a flock is left ‘wide open’ to the risk of health and disease issues. So the cost saving can be small when compared to the resultant losses in output and lower flock performance.


Abortion vaccines are often targeted as a cost which can be forfeited.


Ms Stubbings says: “Some flocks take the risk and believe they are making a saving, but all too often problems can return after a year or two. I would urge farmers to look at the cost of those abortion vaccines to realise their real value. It is only necessary to reduce the level of abortion in a flock by 1 per cent to cover the cost.


“It is miniscule in the scheme of all the variable costs and it is important to remember it is the preventative medicines which make a flock robust against the problems which can take the legs right out from under you.”


As well as the more tangible variable costs which may be a target for producers wanting to lower inputs, Ms Stubbings says flock replacement costs are the biggest single charge flocks have to cope with.


“Many flocks have no idea what their ewe replacement costs are, but before any overhaul of inputs is undertaken this is the type of information producers need to take into account.”


Farmers are advised not to attempt to lower inputs by decisions which affect one part of the system without fully evaluating its broader impact on the whole flock’s output.


“Knowing how many kilos of lamb are being produced per ewe per year is the key piece of information which must be known before any consideration is given to trying to reduce inputs. This figure is the unit into which all the costs of production can be divided into.

Efficiency considerations

  • Average flock figure for kilos of lamb produced per ewe and per hectare must be known
  • Cutting vet and med inputs can be counter-productive
  • Unit energy cost of concentrates more relevant than price per tonne
  • Forage analysis is essential – too few flocks have this data

Contribution

“Once you have a figure for individual units of production costs you can look at the contribution each one makes towards the value of lamb being produced and therefore make an informed decision on what, if any, could be reduced.


“In the case of store lamb production it is still the value of the kilos of lamb produced which is the key figure – even though it is a store lamb system. But in the case of stores produced from hill farms, the figure may be influenced by environmental payments and must be taken into account.”


Sheep producers who believe their costs of production could stand some paring are advised to study some of the most basic data responsible for flock performance – and this is the number of ewes which have actually produced lambs.


“A flock’s culling strategy can be something worth looking at and may provide an opportunity to improve efficiency and output, rather than trying to achieve an improvement by reducing inputs.


“Efficiency of output is the key to profitability, rather than trying to make cuts in variable costs – even in the kind of year we have just had in terms of finished lamb prices. It is about how all the costs involved in producing lambs are being used – and the more efficiently this is being achieved, the bigger impact on the flock’s profitability.”


Ewe feed costs are always an immediate target when input costs are reviewed, but before any changes are made it is important to know the precise feed value of any forages being fed.


“More flocks need to improve their use of forages – and better usage means more control over bought-in feed inputs.


“There is massive potential for flocks to make more efficient use of their forages and of any additional supplementary feeds simply by analysing forages. Far better to look at what feed value forage can provide rather than focusing on how much bought-in feed is being used and how much it costs per tonne.


“Even for lowland flocks which are less reliant on forages and more dependent on bought-in feed, it is not the price per tonne which is the critical factor. It is far more important to know the quality of concentrate.


“The cost per tonne is irrelevant; it is the cost per unit of energy which is important.”

Case Study: Mike Credland, Gloucestershire

Case Study: Mike Credland, Gloucestershire

Improving efficiency rather than trying to improve margins by cutting inputs underpins the system run by prime lamb producer Mike Credland, Newent, Gloucestershire.


He runs 300 Suffolk cross Mules and Texel cross Mules, with the flock split into February and mid-March lambing groups. This season, ewes and lambs were grazed on a New Zealand-style paddock system.


Mr Credland says: “We have been involved in a paddock grazing trial with Sainsbury’s; it certainly helped us use grass more efficiently this year and we used no fertiliser. There is more to be gained by trying to do things more efficiently rather than stripping away important costs which are justified and necessary.”

Control

All lambs are sold deadweight by late September at 19-21kg.


“Our aim is to maximise our output and control inputs, but not necessarily cut them.


No-one expected what has happened this year and there are some who are looking at trying to cut costs for next year, particularly on feed. But I believe you cannot afford not to feed ewes. If it had been a wet and cold autumn last year, this season’s lambs would have been poorer and prices would have been even lower,” he says.


The paddock system used this season not only achieved better use of grazed grass, but also led to less creep feed being taken by lambs.


“We had lambs away earlier and at the same weights with less cost. And we did not apply any fertiliser as we could not get it on early enough. We had more grass in July and August than we normally would have and we managed it better.


“When we faced the £20 per head loss on early lambs early last year, it certainly helped.”


Ewes have been culled harder this year to take advantage of the lower price of replacements and the strong price for culls.


“So we will be lambing a younger flock and using the best concentrates we can afford to ensure ewes are producing plenty of colostrum.


“Rather than trying to save on inputs it is far better to improve output, so minimising lamb losses is something we take very seriously.”

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