QMS “Enterprise Costings” Highlight Wide Variation Between Top and Bottom Performers

The considerable variation in profitability between the top third and bottom third of livestock producers, in terms of business performance, is highlighted in the 2015 edition of the “Cattle and Sheep Enterprise Profitability” published by Quality Meat Scotland today.

The survey results for the 2014 calf and lamb crop year continue to show significant variation in levels of financial and technical performance within the industry, said Stuart Ashworth, Head of Economics Services with QMS.

“Top producers continue to be characterised by high physical, or technical, performance; strong control over costs; and maximising returns from the market place,” said Mr Ashworth.

Of the suckler herds surveyed, those in the top third of gross margin per animal achieved higher output through higher calf rearing percentages, combined with 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. Those in the top third also had lower total variable costs than the average while achieving higher output.

“Variable costs per kg of calf reared were lower among the top third and 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,” said Mr Ashworth.

Turning to the sheep sector he said those in the top-third of sheep producers similarly achieved higher outputs through better stock performance. Typically they reared about 7-15 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 5 kg lwt more lamb per ewe. They also typically sold the highest proportion of lambs for immediate slaughter. The net effect of this was that income per ewe from lamb sales was £13 -£14 per ewe

more than the average.”

Looking at the general trends during 2014, the year under consideration, Mr Ashworth said the calf and lamb crop benefitted from a much-improved season weather-wise resulting in a general improvement in profitability among sheep farmers, although the position in the beef sector remained challenging.

“Calving and lambing was a more positive period than in 2013 and mortality rates at birth were much reduced, while among sheep flocks ewe prolificacy was much improved,” observed Mr Ashworth.

“Additionally, feed and forage was in much better supply and animals thrived better than in 2013 and the increased availability of feed and forage contributed to animals generally being sold at higher weight.”

The general improvement in ewe prolificacy during 2014 meant sheep enterprises were better positioned to benefit from improved physical and financial output than cattle enterprises.

Despite generally lower costs of feed and forage, largely due to lower purchased feed requirement and lower purchased feed costs, other costs continued to increase. Cattle producers selling prime stock in particular found it difficult to recoup this extra cost from the marketplace, stated Mr Ashworth.

“Only 29% of store cattle finishers achieved a positive net margin, down from 72% the previous year, while among rearer-finishers the number achieving positive margins halved in comparison to 2013,” he said.

Even for store cattle producers, where sale prices were similar to a year earlier, the more extensive units struggled to maintain margins, although overall one third of those selling store cattle achieving a positive net margin.

In contrast margins improved among ewe flocks. Indeed, the proportion of hill ewe flocks making a positive net margin lifted from 10% in 2013 to 15% in 2014; though this was still down on 19% in 2012 and 57% back in the 2011 lamb crop year.

Meanwhile, 68% percent of upland flocks recorded a positive net margin, well above the 45% figure for 2013 and 2012. However, among lowground flocks, the proportion achieving a positive net margin fell back from 83% in 2013 to 75% in 2014.

For store lamb finishers, the proportion achieving a positive net margin held relatively steady at 75%. Nevertheless, outwith lowground ewe systems, businesses reporting positive net margins still struggled to deliver a fair return for labour and capital.

“Hill flocks reported considerable improvement in ewe productivity from the depressed levels of the 2013 lamb crop. A lower level of ewe replacement and some improvement in store lamb returns led to some growth in output,” said Mr Ashworth.

The top-third of hill flocks benefited from higher prolificacy and lamb weights resulting in a net output £14 per ewe higher than the average, with variable costs £4 per ewe less this improved productivity transferred into a gross margin £18 per ewe better.

Store lamb producers achieved an average gross margin per lamb sold of £10, an improvement on the year. Although prime lamb prices were firm in late 2014 and early 2015, lower carcase weights resulted in lower market returns. However, by selling smaller prime lambs savings were made in variable costs which led to the improvement in gross margin. Fixed costs did show some increase but, nonetheless, net margins improved to £6 per lamb sold.

The latest “Enterprise Costings” will be available to collect free of charge from the QMS stand at AgriScot on Wednesday November 18th. It can also be viewed on-line at www.qmscotland.co.uk or hard copies ordered by calling 0131 472 4040 or emailing info@qmscotland.co.uk.