Survey shows technical performance key to protecting margins

Scotland’s annual livestock profitability survey has shown improved profitability at the farmgate, despite rising input costs.

The results of the 2010 Scottish calf and lamb crop year survey, to be published on 16 November at AgriScot, continue to underline the importance of technical performance in helping to protect margins against fluctuating input costs and take full advantage of stronger farmgate prices.

The survey covers 68 breeding ewe enterprises farming 39,000 ewes and 110 suckler cattle enterprises farming 9,740 suckler cows, 12 enterprises finishing almost 3,000 store lambs and 47 cattle finishing enterprises selling just over 3,000 prime cattle. Four percent of the suckler herds and 4% of the ewe flocks surveyed were farmed to organic standards.

The survey provides a snapshot of the industry during 2010, and offers a fully audited benchmark for farmers to judge their own performance and see where they can improve.

Top producers generally obtain high physical, or technical, performance from their livestock, have strong control over costs and market their stock intelligently to maximise returns from the market place.

Across suckler herds, those in the top-third of gross margin per animal achieved higher output through a 3% improvement in calves reared per 100 cows, selling calves typically 25kg heavier while using significantly less concentrate feed per cow.

Improved performance and strong cost control means that across the suckler herds surveyed, variable costs per kg of calf reared were typically some 23% lower than the average among the top-third. With the exception of the upland herds selling yearlings, fixed costs per kg of calf reared were also less than the average among the top-third.

Those in the top-third of sheep producers similarly achieved higher stock performance; between 10% and 20% more lambs reared per 100 ewes and, with the exception of lowland flocks where lamb weights were little different, those in the top-third typically sold their lambs 2 kg heavier than the average.

Stuart Ashworth, Head of Economics at Quality Meat Scotland, said: “While the increased prices have helped all producers improve their profitability, or in many cases before subsidy, decrease their losses; it is those concentrating on increasing performance that are in the perfect place to take advantage.

“Across all enterprises, hill or lowground, the top performers have better physical performance levels.

“They put more calves on the ground, take them to better weights and achieve better prices, all while using less concentrate feed and fertiliser. This is where the real skill in achieving profitability lies.”

Results:

• The LFA hill suckler herds surveyed had an average gross margin of £205 per cow. The top third averaged £333 per cow gross margin, an improvement of £128 per cow. However, this improvement reduced to £90 at net margin level. Of the fifteen producers surveyed, only one had 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 £166 per cow, but were outperformed by their counterparts selling yearlings who achieved an average gross margin of £296 per head. Top-third producers selling at weaning made £260 gross margin per cow with 12% more liveweight produced per cow than the average while at the same time keeping variable costs 16% lower. Of those selling yearlings, the top-third achieved a gross margin of £410 per cow. Again variable costs were strictly controlled and compared to the average were 10% lower while still producing 7% more liveweight per cow.Only one business among those selling calves at weaning achieved a positive net margin, 3% of those surveyed. In contrast among those selling yearlings, 36% of the businesses achieved a positive net margin.

• Non-LFA suckler herds reported an average gross margin of £247 per cow while those in the top-third achieved a gross margin of £385. Significant contributors to this improvement were the 7% greater sale weight per cow, while reduced use of concentrates and fertilisers in comparison to the average were behind a 15% saving in variable costs per cow.

• Prudent management of costs continued into the fixed costs which were also 15% lower than the average, leaving the top-third with a net margin £125 per cow better than the average. Twenty-six percent of businesses surveyed achieved a positive net margin.
• Rearer finisher businesses surveyed, recorded an average gross margin of £301 per cow with the top-third averaging £399. However, the average net margin was (-) £140. Only10% of the businesses surveyed achieved a positive net margin.
• Cereal based cattle finishers surveyed, reported an average gross margin of £115 per beast and a net margin of £50. Those in the top-third achieved a £97 improvement in net margin over the average. Indeed 80% of businesses in the survey reported a positive net margin.
• Forage based finishers made an average gross margin of £131 per beast and reported a net margin of (-) £50. Like their cereal finisher counterparts, those in the top-third also achieved a £97 per beast improvement in net margin. However, unlike cereal finishers only 23% of those surveyed achieved a positive net margin.
• Across all suckler herds surveyed, 14% made a positive net margin; a significant reduction from the 21% who achieved this in the 2009 survey. Forty-nine percent of finishing enterprises achieved a positive net margin compared to 50% in 2009.
• LFA hill sheep enterprises in the survey achieved an average gross margin of £29 per ewe. The top-third benefited from higher prolificacy and lamb weights, and achieved this with the same level of variable costs which resulted in a gross margin £20 per ewe better. Slightly higher fixed costs among the top-third eroded this improvement to £14 at net margin level which left the top-third with a positive net margin of £9 per ewe compared to an average net margin of (-) £6 per ewe. Forty eight percent of these businesses achieved a positive margin.
• Upland ewe enterprises surveyed reported an average gross margin of £60 per ewe. Once again, higher lambing percentages and heavier lamb weights helped the top-third of enterprises to return £16.50 per ewe more from the market place. This combined with more efficient cost management gave the top-third a £21 greater net margin per ewe than the average enterprise.
• Lowground breeding ewe businesses in the survey averaged £70.50 for their gross margin. Gross margins ranged from a minimum of £52 a ewe to a maximum of £113 a ewe. Again the top-third achieved the best financial performance as a result of strong technical performance, with each ewe producing 0.65kg more lamb than the average enterprise. Those in the top-third yielded £12 per ewe more than the average net margin of £27 per ewe.
• Store lamb producers achieved an average gross margin per lamb sold of £14 within a range from £4 to £25.50 per lamb. The average net margin among the group was £8 per head and only one business recorded a negative net margin, whereas last year all had a positive net margin.
• All bar one of the upland ewe enterprises surveyed, reported a positive net margin, with an average of £19 per ewe and those in the top-third £37 per ewe. Variable costs among the top-third were £1 per ewe lower than the average, while fixed costs were £5 per ewe higher. Thus, the major contributor to improved returns was improved physical performance.
• Lowground breeding ewe businesses in the survey also achieved a high level of positive net margin with the group averaging £17 per ewe slightly less than their upland counterparts.  While average net output was higher than upland flocks, higher variable costs, particularly feed and forage resulted in gross margins £3 lower than upland counterparts which carried through to net margin.
• Store lamb producers achieved an average gross margin per lamb sold of £9 per lamb and a net margin of £4.
• Among the lowland ewe enterprises, 75% achieved a positive net margin compared to 86% in 2009. Among upland ewe flocks, margins improved to a point where 96% made a positive net margin compared to 71% in the previous year’s survey. However, it was more difficult for the LFA hill breeding ewe businesses to breakeven with only 48% of the sample making a positive net margin. Nevertheless, this still compares. Favourably with the results reported in this category in both 2008 and 2009 where just 20% and 33%, respectively, made a positive net margin.