| North Dakota Agricultural
Research North Dakota State University, Fargo, ND 58105 |
 Critical Control Points For Profitability In Sheep Production (continued) |
Abstract |
The critical success equation is: |
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Materials and Methods |
The identified critical control points are 1)GROSS--having a sufficient volume of production to be efficient; 2) UCOP--having a low unit cost of production; 3) FEEDLOT--adding value to the base production of the flock by feeding lambs to finish weights; and 4) MANAGE--using the management skills necessary to efficiently utilize labor, especially at lambing. The net profit equation suggests that producers may need to evaluate the criteria they use to measure success. Both lambing rate and market price are closely followed by producers with an assumed high correlation with financial success. This research documented no relationship between lambing rate and profitability. The data collected over several years with wide market price fluctuations and wide variations in lambing rate do not show a significant relationship between profitability and market price. The data suggest that producers should instead invest more time and effort into measuring and controlling the cost side of the operation2. As an added benefit, the cost of production is more easily controlled at the farm level than the market price. The MANAGE factor serves as a proxy for good management of the sheep enterprise throughout the year. MANAGE is a reflection of management practices that occurred during the entire production year. Producers need to be aware that efficient use of labor (MANAGE), especially at lambing time, affects their profit potential. The sheep flock is labor intensive at lambing time. Death loss in lambs is identified in the subset of critical control points, and most death in lambs occurs in the first three days of life (Ringwall et al., 1994) when they are in the lambing barn. Adding value to the flock's base production (FEEDLOT) is profitable. An added benefit of profit enhancement at this stage of production is that the labor requirement and death loss risk are low, relative to other times of the year, i.e., the added post-weaning weight gain returns appear to be well above post-weaning costs. Finally, increasing size of the operation (GROSS) is positive for the profit potential of the flock. While the research project was not able to determine the optimum size for a sheep operation it did suggest that flock size increases would be positive for profits. 2A change in Unit Cost of Production has the greatest potential to change the profit picture for producers. The elasticity of profit with respect to UCOP is the highest of all parameters studeid.
Unit Cost of Production
(UCOP) |
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The feed cost parameter (.0064) implies that a $100 increase in the flock's total feed bill, with all other factors held constant, raises UCOP by 64 cents. A feed purchase as small as the purchase of three lick barrels in a flock of this size raises unit cost of production by nearly $1 a hundredweight. This analysis suggests that producers need to carefully evaluate their feed purchase decisions. An increase in weaning weight decreases unit cost with a parameter estimate of -.0043. This implies that, at least up to a point, lamb is more cheaply produced by having the ewe feed the lamb. Post-weaning gain (FEEDLOT), the difference between sell weight and wean weight, lowers unit cost of production. The implication of this is that starting to feed lambs earlier lowers unit cost of production. Increasing the flocks= total weaned lamb weight by 100 pounds decreases unit cost of production by 43 cents. Increasing the flock's total post-weaning weight gain by 100 pounds also decreases unit cost of production, but at a slightly smaller rate. Because the squared term of FEEDLOT is in the equation and affects UCOP positively, a 100-pound increase in post-weaning weight gain decreases unit cost of production by 42.9 cents. A one thousand pound increase in the flock's total post-weaning gain decreases unit cost of production by 33 cents. With an upper bound on acceptable size for market lambs, WEAN and FEEDLOT parameters suggest the need for further study to arrive at an economically optimum wean weight, to take advantage of the most efficiency from both pre- and post-weaning feeding times. Gross Revenue (GROSS)
This equation suggests that adding value to feeder lambs is positive for gross revenue. The value-added component also is a critical success factor in the net equation. The effect of a change in the amount of post-weaning feeding of lambs (FEEDLOT) is larger than the net profit equation implies as the FEEDLOT factor also plays a positive role in increasing gross revenue. The management parameter also is a critical control point for profitability. A positive value for MANAGE indicates that there are days during the lambing season when no ewes give birth. This is wasteful of committed labor and may lead to less rigorous attention being paid to the lambing ewes for the rest of the season. Like FEEDLOT, this factor plays a more important role in the net profit equation than its parameter estimates might suggest, since it also affects the level of gross revenue. The combination of these two parameters suggests that more management attention should be paid to compressing the lambing season so that more of the labor and management resources can be used at the value-added (lamb fattening) phase. Both shortening the lambing season and increasing the post-weaning weight gain would have a positive effect on gross revenue, one of the critical control points for profitable sheep production. Management Measurement
(MANAGE) The prediction equation for MANAGE is below. T-values are in parentheses. The R-square of the model is .78 and all parameters are significant at the 5 percent level.
MANAGE suggests two things. First, when the lambing season is prolonged, the shepherd may get tired which leads to a reduced level of care for the flock. When few lambs are being born, it is easy to skip a night check or otherwise step down the level of management afforded the flock. Second, the lengthened lambing season is an indicator of a lower level of management during the flushing and breeding season and may be a proxy for a lower year-round management level. MANAGE is predicted by two parameters. The first is the month the first lamb is born. This may be a biological response of the ewes to hitting their peak estrus periods. The data show a reduction in the MANAGE parameter in February, followed by a rise through March and a reduction again starting in April and continuing through June. This corresponds to data on production increases in the North Dakota Sheep Testing Program that shows an increase in lambing rate in February (Haugen, 1995). An increase in prolificacy and an increase in percentage of the flock cycling occurs when breeding is timed for the period when the ewe is most actively in estrus. The second parameter is the total flock production (calculated without government payments) (NGCWT), suggesting that as production rises, the MANAGE number decreases. For most producers in this study, market lambs made up the bulk of the flock's production. Higher lamb production is the result of best management techniques in nutrition, reproductive management, and animal selection. Lambing season length is also affected by these best management practices. Value-added Component
(FEEDLOT) The prediction equation for valued is below. T-values for parameter estimates are in parentheses. The FEEDLOT model has an R-square of .94 and all parameters are significant at 5 percent.
The FEEDLOT parameter can be predicted with a three-term equation: 1) percent death loss of lambs pre-weaning (DEATH), 2) total flock weaning weight (WEAN), and 3) total flock production (calculated without government payments) (NGCWT). As death loss rises, the critical success factor, FEEDLOT, goes down. This suggests the reluctance of a producer, who has already experienced higher death loss, to accept risk of owning the lambs for a longer time. Since the majority of lamb deaths pre-weaning occur in the first three days of life, most often in the first 24 hours, reduced management at lambing time tends to lead to sales of feeder lambs. Total weaning weight is negatively related to FEEDLOT since average weaning weight is one of the defining terms for FEEDLOT. The upper bound for lamb weight is set by the market for slaughter lambs. As weaning weight increases, the FEEDLOT component has to be reduced. This asks the question, where are the efficiencies in lamb feeding the best? Are they gained by earlier weaning and feeding the lamb in the feedlot sooner or should lambs be weaned later to optimize the return to the producer? The data available are not sufficient to answer this question. Finally, FEEDLOT is predicted by total non-government production (NGCWT) in the flock. Since NGCWT is positively related to FEEDLOT, the two factors will move together. The other possibility is that the manager who has the skills in all areas necessary to have a high production level also has the skills and confidence to retain ownership of his lambs through the feeding period and market at higher weights.
Our study suggests that traditionally measured parameters such as lambing rate, average weaning weight and death loss are not critical control points for profitability in sheep flocks. Pre-weaning death loss did appear in the functional equation for the definition of the term feedlot, however its effect on net profit was very small. This would suggest that expensive efforts by shepherds to change the lambing rate and death loss results in their flocks may not be cost effective. The total cost and total production functions strongly suggest that potential for size increases in sheep enterprises exists. While the available data do not cover a range large enough to be sure of the optimum size, it does set the stage for further research to determine the optimum flock size. Further work to refine the total cost curve for this group of producers would provide them with a powerful tool for maximizing profits from their sheep enterprise. Producers who are aware of their individual cost function have a competitive advantage in agricultural production. Producers should focus more management attention on cost of production records. While not foregoing traditional records, less emphasis should be placed on the traditional production measurements of lambing rate and pre-weaning death loss. Producers need to spend more management attention on knowing their cost of growing feeder lambs and their costs of weight gain on lambs after weaning. Today's producer should strongly consider using a profit center analysis program to determine and monitor the profitability of his sheep flock. In addition, our study suggests that sheep producers should maintain historical records of critical control points allowing them to measure progress over time. The availability of SHEEPBUD and the SHEPHERD database to sheep producers makes this task easy and inexpensive. Several cautions should be kept in mind when using this research. First, the analysis was done with cash cost of production data. Resources were not valued at market price. This may have allowed low cost feed producers to skew the results. The sample size is small relative to the population of sheep producers in the United States. The flocks studied represent a fairly homogenous group of producers in a small geographic area. The study group represents only part of the many different types of management, climates, marketing conditions, and other variations that exist in the sheep industry; never-the-less, it is a start. We hope that this research stimulates additional study of the critical control points for profitability in the sheep industry.
Gutierrez, Paul H., Norman L. Dalsted, and Rodney L. Sharp, 1991, "Measuring Economic Efficiency in Sheep Production," SID Sheep Research Journal, v7:1 p 1. Haugen, Roger G., 1981, "The North Dakota Sheep Production Testing Program," NDSU Extension Bulletin AS-753, North Dakota State University, Fargo. Heady, E.O. and J.L. Dillon, 1961, Agricultural Production Functions, Iowa State University Press, Ames. Nudell, Dan and Harlan Hughes, 1996, SHEEPBUD, North Dakota State University, Fargo. Ringwall, K.A., P.M. Berg, T.C. Faller, P.L. Marek, and J.W. Galbreth, 1994, "Understanding the Components of Sheep Reproduction," 35th Annual Western Dakota Sheep Day Report, Hettinger Research and Extension Center, North Dakota State University, Fargo. SAS Institute Inc. SAS/STAT User's Guide, Release 6.03 Edition. Cary, NC: SAS Institute Inc., 1988. Toumanoff, Peter and Farrokh Nourzad, 1994, A Mathematical Approach to Economic Analysis, West Publishing Company, Minneapolis. Authors Dr. Harlan
Hughes, Professor and Extension Livestock
Economist Tim Faller,
Director Corresponding author Location where the research
was (primarily) done Funding source of the project Additional credits the authors
need to give |
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