Cattle, sheep diversification make “cents” for some producers
A livestock economist with the University of Wyoming tells producers that one of the keys to avoiding pitfalls in agriculture, especially with livestock, is paying attention to margins.
“Margins are small so as a producer, you have to make good decisions every year to get that margin,” Bridger Feuz tells producers during a sheep and goat production meeting in North Platte, Wyo. “Sometimes, we make mistakes. If we don’t do a proper analysis and think about some of the changes we need to make, it can take us, from a financial perspective, a long time to build that equity back into the operation.”
Feuz mentioned several economic tools offered at http://www.uwyoextension.org/ranchtools, that can fill some of the roles of a banker in helping producers with decision-making. “Sometimes we need a partner, like a banker, so this analysis can help us with that. A healthy dose of skepticism can help keep us out of trouble and avoid some of those pitfalls,” he said.
Producers should not underestimate the value of the budget. In fact, regional budgets have been developed that sheep producers can access on the American Sheep Industry or the Livestock Marketing Information Center websites.
Feuz encouraged producers to use the regional budget as a starting point for evaluating their operation. “Each of us (extension educators) have compiled these regions by interviewing several different sheep producers in each region,” he said. “Using our tools, producers can work through their numbers and compare them to see their competitive advantage or disadvantage,” he said. For example, a sheep producer in Wyoming can access a budget for his region containing data from Wyoming producers that were selected to provide data for the regional budget.
“Equipment and buildings are hard to compare to other operations because they are a fixed cost,” Feuz said. But producers can look at variable costs like feed, veterinary expense, and breeding costs of other operations and see how they compare. “No two operations will be the same, and when you look at the variable costs you have to realize they are averages,” he said. Because it is an average of several operations, Feuz said there will be a big range of values. “I think it is helpful for producers because they can look at veterinary medicine expense, and if the average is 64 cents and their vet costs are $1.54, they can further analyze that number to see why it’s different. It doesn’t necessarily mean you are doing something wrong, but it does help you ask yourself the important questions. You can also look at these numbers and see where you’re different and how you’re different, and it may help you become more efficient,” he said.
An integrative producer in Wyoming runs his numbers through this budget program to find the right product mix of sheep and cattle. Feuz found it interesting that when this producer calculated profit from 2010 through 2015, the sheep averaged $37.14 per ewe over six years, with a low of $8.20 in 2013 and a high of $70 in 2011. The cattle averaged $184 per cow above cash and variable costs with $30 in 2012 and $530 in 2014.
“The year 2011 was an amazing year for sheep,” Feuz said. “They actually made as much money per ewe as cattle were making per cow.” But, which was more profitable during the other five years? The answer is probably cattle at first glance, but producers can actually run more sheep on the available resources they have than cattle, so they would have to adjust for it. In Wyoming, Feuz said they use the BLM and Forest Service adjustment of five ewes per cow, but in some areas producers can easily run six to seven ewes per cow.
If you adjust those numbers based on five ewes per cow, that is $187, which is just a little bit more than cattle. “This is a national average, so your numbers will be different,” Feuz said. “The key is that operations that are the most successful are the ones that can run both sheep and cattle. If you can do each at a fairly equal level, it has the potential to even out income for you because both aren’t always profitable,” he said.
Feuz said these numbers point out that there is a potential for profit in the sheep industry. A lot of young people aren’t necessarily interested in getting into sheep because of what the nay-sayers and downers say. However, Feuz finds there are some opportunities to make money, not just in the cattle business, but in the sheep business, too. ❖
— Clark is a freelance livestock journalist from western Nebraska. She can be reached by email at firstname.lastname@example.org.