17th November 2014

Cattle and Sheep Margins Improved Despite Challenge of Spring 2013

Most cattle and sheep businesses saw an improvement in their margins during 2013 despite the exceptionally difficult spring weather, according to Quality Meat Scotland’s latest enterprise costings report.

“Cattle and Sheep Enterprise Profitability in Scotland 2014”, launched today (November 17th 2014), summarises the results of a survey of Scottish beef and sheep producers during the 2013 calf and lamb crop year. The survey was undertaken by SAC Consulting, part of SRUC, Scotland’s Rural College.

“The very challenging weather of spring 2013 impacted heavily on mortality during hill sheep and suckler herds’ lambing and calving and resulted in considerable feed and forage expense for all herds and flocks,” observed Stuart Ashworth, QMS Head of Economics Services. The legacy of the 2012 wet weather conditions also resulted in additional veterinary costs for some during 2013. 

“However, market prices for all classes of stock covered by the survey did increase substantially during 2013,” Mr Ashworth added. “Furthermore, the improved weather conditions of the second half of 2013 also meant that animals thrived better than in 2012 and tended to be sold at higher weights.  Consequently most businesses saw an improvement in margins.”

Looking at suckler herd performance, the survey results highlighted the difficulty to achieve a positive margin from the market place.  One third of the suckler herds surveyed reported a positive net margin from which to pay family labour and reward the risk capital invested in the business - an improvement from 22% last year. 

“Margins were maintained more easily among store cattle finishers where 72% of businesses surveyed achieved a positive net margin, up from the 59% who achieved this objective last year.  Nevertheless, those finishing long keep store cattle were the one category that saw a decline in margins in 2013,” observed Mr Ashworth.

Looking at hill sheep businesses, the difficult weather conditions in early 2013 resulted in a general deterioration in hill ewe margins, with only 10% of hill flocks returning a positive margin, down from 19% last year and 57% two years ago.  Forty five percent of upland flocks recorded a positive net margin, unchanged from last year, while 83% of those surveyed running lowground flocks recorded a positive margin, unchanged from last year. 

Just over three quarters of the store lamb finishers achieved a positive net margin compared to 50% last year.  However those businesses reporting positive net margins still struggled to deliver a fair return for labour and capital. 

He said there were signs of a significant increase in producers’ drive to improve their technical knowledge and the application of science. “They are recognising that the success of their businesses long-term will be most influenced by their ability to make the best use of their land resource rather than CAP support,” said Mr Ashworth.

However, the survey results continue to show significant variation in levels of financial and technical performance within the industry. Top producers continue to be characterised by high physical, or technical, performance; Strong control over costs; and maximising returns from the market place.

“Those running suckler herds in the top third of gross margin per animal achieved higher output through higher calf rearing percentages, generally selling heavier calves resulting in higher yield per cow in the herd.  They also typically received 6-10p/kg lwt more for the calves they sold,” he said.

Suckler herds in the top third of financial performance were also characterised by strong variable cost control.  With the exception of lowground sucklers, those in the top third had lower total variable costs than the average while achieving higher output.  In all cases variable costs per kg of calf reared were lower among the top third.  Fixed costs were also firmly controlled, in all cases top third producers had lower fixed costs per kg of output even if on occasion fixed cost per cow was higher than the average.

“Those in the top-third of sheep producers similarly achieved higher outputs through higher stock performance.  Typically they reared about 12-22 more lambs per 100 ewes than the average,” stated Mr Ashworth.

Although they did not necessarily rear lambs to the heaviest weights, the larger lamb crop typically resulted in top-third flocks selling 7 to 13 kg lwt more lamb per ewe.  They also typically sold the highest proportion of lambs for immediate slaughter.  The net effect being that income per ewe from lamb sales was £20 -£30 per ewe more than the average.

LFA hill suckler herds surveyed had an average gross margin of £289 per cow.  The top-third averaged £399 per cow gross margin, an improvement over the average of £110 per cow.  The top-third achieved a positive net margin of £22 per cow against the average of (-)£96

Non-LFA suckler herds reported an average gross margin of £336 per cow while those in the top-third achieved a gross margin of £503.  A significant contributor to this improvement was the 28% greater sale weight per cow. Thirty seven percent of businesses surveyed achieved a positive net margin.

Rearer finisher businesses surveyed, recorded an average gross margin of £501 per cow with the top-third averaging £678.  However, the average net margin remained negative at (-)£66 but improved £5 over the year.  Thirty seven percent of the businesses surveyed achieved a positive net margin, double the rate of last year.

The top third performers among the cereal-based cattle finishers achieved a £166 improvement in net margin over the average, with 80% of businesses reporting a positive net margin. Forage-based selling younger cattle (under 22 months) achieved an average gross margin of £203 per beast and reported a net margin of (-)£47.  Those selling older cattle (over 22 months) achieved a gross margin of £194 per head and net margin of (-)£12. 

LFA hill sheep enterprises in the survey were badly affected by the impact on costs and physical performance of the poor spring 2013 weather.  As a result, the average gross margin fell £10 per ewe, compared to last year, to stand at £16 per ewe. 

Copies of the publication are available free of charge and can be collected from the QMS stand at AgriScot, viewed on line here or hard copies can be ordered by calling QMS on 0131 472 4040. 

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