Despite improved margins over the past year for cattle and sheep producers it is still extremely difficult, excluding subsidy, to earn a living from suckler beef and hill sheep production, according to a new survey.
The results, contained in Quality Meat Scotland’s “Cattle and Sheep Enterprise Profitability in Scotland 2012” unveiled today (November 19th), reveal only 30% of suckler herds and 57% of hill flocks reported a positive net margin with which to pay family labour and re-invest in their businesses.
And, according to Stuart Ashworth, Head of Economics Services with QMS, even then those businesses reporting positive net margins still struggled to deliver a fair return for labour and capital.
“The results bring the difficulties faced by suckler herds, particularly those operating very extensively in disadvantaged areas, clearly into focus. However it should be noted that although less than a third of sucker producers made a positive net margin, this represents a significant improvement from the 14% who achieved this in our 2010 survey,” said Mr Ashworth. Likewise, 60% of finishing enterprises achieved a positive net margin compared to 49% in 2010.
The survey results also show that, while there has been general improvement in profitability, there continues to be significant variation in financial and technical performance within the industry. Top producers are typically characterised by high physical or technical performance, strong control over costs and an ability to maximize market returns.
Top third beef suckler herds sold heavier calves, achieved higher calf rearing percentages and generally lower herd replacement rates. They also typically received 3-7 p/kg lwt more for the calves they sold and had strong variable cost control.
Top third sheep producers similarly achieved higher outputs through better stock performance, with a number of factors resulting in them achieving 20-30% more income per ewe from lamb sales than the average.
Typically they reared about 20 more lambs per 100 ewes than the average. Although they did not necessarily rear lambs to the heaviest weights, the larger lamb crop typically resulted in top-third flocks selling 6 - 10 kg lwt more lamb per ewe. They also typically sold the highest proportion of lambs for immediate slaughter.
“Financial returns among store cattle finishers reflect the changing circumstances of the market place,” observed Mr Ashworth. “In 2011 those in the top third tended to have bought the smallest cattle and finished them over the longest period reflecting the benefits of selling into a rising market.
“In 2010 the picture was the opposite as a flat market benefited those who finished cattle over the shortest period. However, despite a longer finishing period those in the top third did have strict control over variable costs, spending around 3% less than the average, but because of a longer finishing period they did carry higher fixed costs.”
LFA hill suckler herds surveyed had an average gross margin of £279 per cow, with the top third averaging £411 per cow gross margin, an improvement of £132 per cow. The top third achieved a positive net margin of £83 per cow against the average of -£95. Of the eighteen producers surveyed only five achieved a positive net margin, emphasising the challenges of farming in an extensive way on severely disadvantaged land.
The LFA upland suckler herds were split into two categories, one group selling at weaning and a second group selling yearling stores. Those selling at weaning made an average gross margin of £258 per cow, but were outperformed by their counterparts selling yearlings who achieved an average gross margin of £375 per head. One quarter of businesses selling calves at weaning achieved a positive net margin. In contrast among those selling yearlings, 40% of the businesses achieved a positive net margin.
LFA hill sheep enterprises in the survey achieved an average gross margin of £33 per ewe. Fifty seven percent of these businesses achieved a positive margin, a modest improvement from the 48% who achieved this for their 2010 lamb crop.
“All the upland ewe enterprises surveyed reported a positive net margin, with an average of £30 per ewe and those in the top-third £45 per ewe. Variable costs and fixed costs among the top third were higher than the average. Thus, the major contributor to improved returns was improved physical performance which saw those in the top third produce 17% more lamb per ewe,” said Mr Ashworth.
Lowground breeding ewe businesses in the survey also achieved a high level of positive net margin with the group averaging £28 per ewe slightly less than their upland counterparts. All the lowground flocks surveyed reported a positive net margin.
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