Mid-season lamb producers top of the flocks
Positive trends in outlook set to continue for mid-season lowland lamb producers in 2019, writes Anne Kinsella
Historically, there has been a wide range in farm profitability. That range continues to persist, and sheep farms are no exception. In this article, the focus will be on mid-season lowland lamb enterprises, the most predominant lowland sheep system.
In this analysis, farms are assigned to three equally sized groups, termed least profitable (‘Bottom’), average (‘Middle’) and most profitable (‘Top’). The average levels of output, direct costs, gross and net margin per hectare and indicators of technical performance across these three groups can then be compared.
In 2018, mid-season lowland lamb producers did not lose as much as other grassland systems. While marketed output value was higher (as a result of higher lamb prices and the receipt of payments from the Sheep Welfare Scheme), input expenditure was up strongly, particularly feed input expenditure which was up over one third.
Despite the large increase in input expenditure which eroded the higher output value, mid -season lamb farms managed to maintain their margins just short of margins earned in the previous year. Indeed the majority of mid-season lamb farms remain categorised in the positive net margin category. Based on analysis as presented at the Outlook conference last month, a more positive margin outlook for 2019 is forecast. Gross margins earned by the average mid-season lamb enterprise in 2019 will increase relative to those estimated for 2018, due largely to significantly lower costs of production as concentrate feed usage returns to normal levels.
Welfare scheme payment
In 2019, margins earned on the mid-season lowland enterprises will continue to be boosted by the receipt of the coupled Sheep Welfare Scheme payment.
While, on average, the gross margin for the mid-season lamb enterprise is forecast to be circa €765/ha in 2019, a 10pc increase on 2018, there exists great variability between the three ranked groups. Gross margin for the Top group is forecast at just over €1,200/ha compared to gross margin for the Bottom group, forecast circa €300/hectare. Top producers earn, on average, four times more per hectare than their counterparts in the Bottom group.
The large variation in gross margin earned per hectare is also reflected in variation in net margins earned.
Net margins are forecast to increase 37pc (to €250/ha), on average, in 2019. However, this average net margin figure also conceals great variability.
When we look at the three groupings, we see quite a different picture emerging. Net margins for Top and Middle groups are positive, with Top group forecast to earn €660 per hectare.
For the Bottom group, negative net margins persist despite the stable outlook for lamb prices and the forecast decrease in direct costs of production for 2019.
Despite the upward trajectory in margins that is forecast, for the Bottom group the forecasted net margin per hectare persists in negative territory at circa –€50 per hectare.
So how can the least profitable group move up the rankings and become more profitable?
In part, this range is reflective of differing agronomic conditions such as soil quality, which limit the capacity of some farms to increase the intensity of production. But there are other factors that are within the control of the farmer. Large differences in the value of output per hectare between the three groups of farms are due to differences in weaning and stocking rates.
Higher levels of technical performance are reflected in an average carcass output per hectare, which is two thirds higher on the most profitable verses the least profitable enterprises.
Gross margins
Interestingly, expenditure per hectare on concentrate feed and other costs directly related to this enterprise are broadly similar on the Top performing farms compared to the Bottom group, signalling efficiency and productivity gains on the part of the former.
Pasture and forage costs are lowest for the Bottom group with feed supplemented with additional concentrate feed. The large differences in gross margin earned per hectare reflect a large variation in the intensity of production across the farm population, but also differences in direct costs per hectare.
When direct costs of production per kg of lamb carcass produced are compared, the impact of different levels of production intensity per hectare can be taken into account.
Direct costs of production per kg of lamb carcass produced on the least profitable farms are 72pc higher than the costs per kg incurred on the most profitable of the mid-season lamb enterprises.
Based on the latest Teagasc NFS data (2017), the proportion of farms achieving higher gross margins per hectare increased substantially, with 42pc of producers earning more than €750 per hectare.
At the other end of the spectrum, there was a decline in the proportion of farms in the lowest margin group. So this is indeed a positive and a trend in the right direction. Following an exceptional start to the new year, here is hoping that the weather outlook remains positive well into the spring so that ewes and newborn lambs can enjoy the great outdoors on a carpet of grass also proving beneficial from a financial and margin perspective.
The Teagasc National Farm Survey data on which this analysis is based is representative of almost 9,500 lowland farms operating a mid-season lamb enterprise.
Further reading: Review of Sheep Farming in 2018 and Outlook for 2019, Kevin Hanrahan and Anne Kinsella, Outlook 2019, Economic Prospects for Agriculture, December 2018.
Anne Kinsella is senior research economist at the Teagasc Rural Economy & Development Programme, Athenry. Email: Anne. Kinsella@teagasc.ie